| There’s an electronic egg exchange that sets the market price of eggs. [1] It’s called Egg Clearinghouse Inc., or ECI; its website is eggs.org. It is not the main place to buy eggs. You buy eggs at the supermarket. Supermarkets and restaurants and bakeries and other big egg users also do not go to the Egg Clearinghouse to buy most of their eggs. [2] They enter into supply arrangements with egg producers, who deliver them the eggs they need at the times and places they need them. The Egg Clearinghouse is for extra eggs. Sometimes the egg producers have too many eggs: Their hens have laid more eggs than they have sold to their customers. Other times, the egg producers are “net short”: Their hens have laid fewer eggs than they have sold, and they need to buy more eggs to deliver to their customers. The Egg Clearinghouse is a place for the egg producers who are short eggs to buy eggs from the egg producers who have extra eggs. The price of eggs on the Egg Clearinghouse is whatever price balances supply and demand on the exchange: If egg producers want eggs, they bid for them; if they have extra eggs, they offer them. There is some market-clearing price, and producers who need extra eggs pay that price. What about supermarkets and restaurants and other egg users? They pay the price they negotiate with producers. How is that price set? You could imagine a supply contract saying, like, “we will sell you 100 dozen eggs a week for the next year at $0.30 per dozen,” or whatever. But in fact egg prices are variable, and the supply arrangements are often based on benchmark market prices. There is a reporting agency, now called Expana but formerly called Urner Barry, that computes daily benchmark egg prices based on trades (and bids and offers) on the Egg Clearinghouse. [3] And “egg producers … often sell eggs to retailers including grocery stores and restaurants under contracts for which the price of eggs is based on the daily price quotations published by Urner Barry.” [4] The market price on the Egg Clearinghouse determines the wholesale price charged to customers. “Egg Clearinghouse Inc. is nationally recognized as an exchange to help determine and establish the market value for eggs and egg products,” says eggs.org. “This is known as ‘Price Discovery.’” I could stop there. This is a familiar story and you probably know the ending. There’s a big market (egg producers selling eggs to supermarkets etc.), and there’s a small market (egg producers selling extra eggs to each other on an electronic exchange). The price in the small market determines the price in the big market. Participants in the small market are also participants in the big market. You can spend a little money in the small market to move the price, which can make you a lot of money in the big market. That is the story of, you know, half the stuff I write about. That is the story of Libor, the former benchmark interest rate: There was a small interbank lending market and a gigantic interest-rate derivatives market that priced off of the small interbank lending market; manipulating the price in the small interbank lending market was relatively easy and could have lucrative consequences in the big derivatives market. It is arguably the story of Jane Street’s alleged Indian options manipulation: Big Indian options market, small underlying stock market, what do you expect. There was even a scandal, a decade ago, involving manipulation of benchmark prices for chicken; I used to call it “Chicken Libor.” It would be weird if egg producers didn’t manipulate the Urner Barry price. They did. The US Department of Justice announced yesterday: The Justice Department’s Antitrust Division, together with 17 State Attorneys General, filed a civil lawsuit against Cal-Maine Foods Inc. (Cal-Maine); Hickman’s Egg Ranch Inc. (Hickman’s); and Centrum Valley Holdings LLC, Versova Holdings LLC, and Versova Management Cooperative (Versova) for unlawful coordinated manipulation of egg prices. ... As the complaint alleges, Defendants conspired to inflate Urner Barry’s price quotations by agreeing to: (1) submit a large number of bids; (2) cause multiple Defendants to bid in order to signal to Urner Barry that a diverse set of market participants needed to buy eggs; (3) submit a large number of bids in the hours leading up to the publication of Urner Barry’s price quotations; (4) submit bids that were unlikely to lead to executed trades; and (5) execute trades at premium prices. Yep. That’s just what you’d do, if you were (1) faced with this market structure and (2) maybe a bit hazy on market manipulation and antitrust. law. The complaint has some examples: [On December 20, 2022,] Hickman’s CEO … [emailed] senior executives from Cal-Maine, Versova, and others, stating, “[p]lease consider posting strong bids, early and often. The market reporters don’t get in for another hour, so it will be good for them to see diverse bidding upon logging on.” (Urner Barry is more likely to increase its price quotations if it observes higher bids from a variety of market participants.) Hickman’s CEO later emailed again, stating, “[h]urry[.] There are only 16 bids on ECI right now and 15 of them are ours [Hickman’s bids].” Shortly after that email, all three Defendants collectively submitted dozens of bids on ECI, most of which were at premium prices. By contrast, all other market participants combined submitted fewer than six bids that morning. ... On December 20, Urner Barry again increased its price quotations for white, large, shell eggs across all regions. They did some private trades with each other at high prices, which also got included in the benchmark calculation. And they did some spoofing, submitting bids at high prices (which again influenced the benchmark) and then deleting them to avoid actually buying at those prices: On December 22, a senior Versova executive told another Versova executive to “light up the northwest bids please. .02 over.” That executive agreed and then placed bids at a price that was two cents greater than Urner Barry’s price quotation for the Northwest. Prospective sellers were required to call prior to accepting these bids. Then, when one of the Versova executives noted that the “NW bids are getting hit”—meaning that a seller was offering to sell the eggs to Versova to meet Versova’s bid—the other Versova executive stated that he should delete the bids, suggesting that Versova did not need the eggs.
The companies agreed to settle the cases, though several denied wrongdoing. As part of the settlements, the companies have agreed not to coordinate with each other on egg bidding. Delightfully, they have also agreed hand over some eggs? Here’s a press release from New York’s attorney general: New York Attorney General Letitia James today secured more than 50 million eggs for consumers nationwide and $3.3 million from some of the nation’s largest egg producers for colluding behind the scenes to raise prices. … Of the 53 million eggs obtained through the settlement, approximately 4.9 million eggs will be delivered directly to food banks and community organizations serving New Yorkers.
“Secured more than 50 million eggs,” perfect. I think the second sentence means that the other 48.1 million eggs will be delivered to food banks in the other states that sued, but it would be amazing if New York State kept most of the settlement eggs for the state treasury. We talked yesterday about a lawsuit that Susquehanna Investment Group filed against some anonymous traders who bought, from Susquehanna, short-dated out-of-the-money put options on Chinese brokerage stocks just before the Chinese government announced a regulatory change that caused those stocks to tank. The puts “were purchased for only approximately $12 million, but were highly lucrative, yielding a profit of over $100 million and a return of over 900%.” Susquehanna thinks that the put buyers were insider trading, and is suing to get the money back. I wrote that retail options market making is a lucrative but risky business: Most of the time, you are selling options to gamblers who lose money (to you), but some of the time you are selling options to insider traders who, for instance, know that a merger is coming and buy short-dated call options on the target. (Or Chinese regulators who know that a crackdown is coming, etc.). If you can avoid adverse selection by suing the winning gamblers for cheating, then that’s an even nicer business. If the customers lose money, you keep the money; if they win too much money, you also keep the money. A couple of updates. First of all, Susquehanna won the first round. Bloomberg News reports: Susquehanna International Group won a court order freezing brokerage accounts it claims are linked to a $100 million insider-trading scheme and allowing it to subpoena the brokers for the account-holders’ identities. … Manhattan US District Judge Arun Subramanian late on Monday granted Susquehanna’s request for a court order freezing certain accounts at the three firms and said it had demonstrated sufficient reason to serve subpoenas on them. … Interactive Brokers said in a statement Tuesday that it had been cooperating with Susquehanna, including freezing accounts, since the trading activity had been identified. Representatives for Up Fintech and Futu didn’t respond to requests for comment. One possibility here is that this is all a misunderstanding, the put buyers had no inside information and bought those options for legitimate hedging or fundamental-research reasons, they will show up in court and explain everything, and the court — and perhaps even Susquehanna — will be like “you’re right, you won fair and square, we’re sorry we doubted you, here’s your money.” The other possibility is that no one will ever hear from these put buyers again and Susquehanna will keep the money. Susquehanna and the judge think that the second outcome is more likely, and obviously they’re right, but you never know! My Twelfth Law of Insider Trading is: “If you insider trade by buying short-dated out-of-the-money call options on a merger target, and the SEC freezes your profits, don’t show up in a U.S. court to ask for them back,” which I think applies here. On the other hand, we have also discussed exceptions to the Twelfth Law: If there’s really no evidence against you, other than your well-timed trades, maybe you can show up in court, keep a straight face, and get your money back. I got a number of reader emails about this story, the best of which read: This seems like the coward's way out to me. You'd think a firm as sophisticated as Susquehanna would just notice when a bunch of retail customers are placing big bets on short-dated out-of-the-money options and trade on the merger.
This is a good point, but I want to raise two objections. First: It’s not obvious that “when a lot of retail investors buy long-shot options, you should copy their bet” is actually a good heuristic. It would have worked here, I guess, but sometimes a lot of retail investors will all make the same terrible bet; you don’t always want to copy them. “When a lot of retail investors buy long-shot options, fade them all day long” is also sometimes a good heuristic, and being on the opposite side of retail options gamblers is often a great trade. Perhaps — probably — Susquehanna has some more nuanced model of when retail flows are informative and when they’re stupid, but I wouldn’t assume that the model is infallible. Second: It’s not obvious that Susquehanna didn’t do this. Imagine you’re an options market maker and a bunch of customers all come to you to buy short-dated out-of-the-money options on some public company. You run it through your proprietary nuanced model, and the model is like “there is a 100% chance that these people are insider trading and a merger is coming.” So you go out and buy even more call options on the company. [5] You are now net long call options on the company: You sold, like, 1 million options to the insider traders, and then you bought 10 million options for yourself. The merger is announced, each option goes up $20, and you make a $180 million net profit. Great. But, also: You did sell those 1 million options to the insider traders. They made a $20 million profit, arguably at your expense. You could … also … sue them? Get the $20 million back too? It’s not like Susquehanna’s complaint in this case says “Susquehanna was net short put options and lost $100 million.” Susquehanna’s complaint says: Plaintiffs [Susquehanna] traded the relevant options contemporaneously with the Defendants. In fact, Plaintiffs were the sellers for a substantial number of the Defendants’ purchases, including trades that resulted in the Defendants making approximately $71 million in illicit profits. ... The Defendants’ scheme directly harmed the Plaintiffs, as the Plaintiffs served as counterparties for a substantial portion of the Subject Trades. With respect to the Subject Trades in which the Plaintiffs served as counterparty, the Defendants paid total premiums of $6.7 million and obtained profits of approximately $71.4 million. It says the customers made $71.4 million; it never says Susquehanna lost $71.4 million. Presumably Susquehanna delta-hedged some of those options, and/or bought some of them back from other customers or dealers. For all I know Susquehanna made money on Chinese brokerage stocks, overall, that day. That’s irrelevant. The point is that Susquehanna sold some customers options that made them $71.4 million of (allegedly!) illicit profits, and Susquehanna wants that money back. Finally, Byrne Hobart points out by email that this is old news to Susquehanna. Its co-founder Jeff Yass discussed getting adversely selected by insider traders in Jack Schwager’s 1992 book The New Market Wizards: Yass: A lot of these insider trading cases involve options, and we’re the people who lose the money. … The options for Combustion Engineering are traded on the Pacific Coast Exchange. The options rarely trade. One morning, we received a call from the board broker (the exchange employee responsible for managing order imbalances). He said there was an order to buy several hundred options and inquired whether we wanted to take the other side. The stock was trading at around $25, and we agreed to sell three hundred of the 25 calls at $2 1/2. Ten minutes later, trading in the stock was halted, and there was an announcement that the company was being taken over by a European corporation. When trading resumed several minutes later, the stock reopened at $39, and we were out over $350,000 in a matter of minutes. It turned out that the buyer was on the board of directors of the acquiring company. Schwager: What ultimately happened? Yass: In this particular case, we’ve already gotten our money back. The SEC identified the buyer quickly, and because the individual was a high-level foreign executive who didn’t even realize he was doing anything illegal, he returned the money without any complications. Simpler times! In 2026, apparently Susquehanna doesn’t want to wait for the US Securities and Exchange Commission to identify and sue insider traders, which is understandable, so it’s doing it itself. “Prediction markets,” I sometimes write, is mostly a fancy way to say “sports gambling.” The big prediction market companies, Kalshi and Polymarket, have built a new kind of sportsbook that has some regulatory advantages, and that’s a good business. But they’d never say that: They’ll tell you that prediction markets are about harnessing the wisdom of the crowd to understand the future, helping businesses hedge real-world risk, blah blah blah. My sense is that they are sincere in this. Prediction markets have been around, in theoretical papers and in small-scale experiments, for a long time, and there is a longstanding prediction-market culture. That culture is idealistic and intellectual and rationalist and not at all about sports betting. Kalshi and Polymarket were influenced by that culture, and I am sure that their intention was to build truth machines and hedging platforms. It’s just that sports are — unsurprisingly, in hindsight — where the money is. And Kalshi and Polymarket are idealistic and intellectual and rationalist and all that, but mostly they want money, and there you go. [6] The prediction market culture takes place mostly at an annual convention called Manifest. Bloomberg’s Christopher Beam went to this year’s Manifest to see how the prediction market true believers are feeling, and it’s about how you’d expect: Happy that prediction markets are booming, but a bit sad about all the sports. On June 13, just as the New York Knicks were clinching the NBA championship in San Antonio, Eliezer Yudkowsky was making a point about prediction markets. It was the second day of Manifest, an annual convention in Berkeley, California, and Yudkowsky, wearing a gold sequined jacket and silver hat, was explaining to a small group of young men that these markets — which aggregate bets based on people’s insights into and beliefs about the future — are humanity’s best shot at establishing collective knowledge. They are, he said, “civilization’s way of knowing what it knows.” Suddenly, news of the Knicks’ historic win arrived via mobile push alert, and Yudkowsky responded with jaunty disdain: “Are those sportsball players?”
Right, if you are Eliezer Yudkowsky, you want prediction markets to predict and thus avert AI-driven human extinction or whatever. But the actual wisdom of the actual crowds on actual prediction markets is “let’s bet on the Knicks.” And: As conference-goers spoke on panels or milled around the venue — Lighthaven, a leafy, labyrinthine, privately owned compound that was formerly a hotel and scans as part grad-student flophouse, part self-help retreat space — some expressed pride that their once-obscure hobby had gone mainstream. “I hear people crowing about how we’ve been right,” said Robin Hanson, a George Mason University economics professor who’s considered the godfather of prediction markets. “They feel they’re on the up and that they deserve respect, and that just produces an energy.” At the same time, many attendees seemed disillusioned, highlighting fears that the big platforms could undermine the technology’s prospects for serving the public good. “I think many people feel disappointed that sports gambling has become such a prominent part of prediction markets,” said Scott Alexander, the influential author of the blog Astral Codex Ten. “That was not the original intent.” I don’t think he just means “that was not the original intent of the people at this conference”; I don’t think that was the original intent of Kalshi or Polymarket either. But prediction markets are truth machines, and the truth is that people like betting on sports. Elsewhere: “Inside A Secret Clipping Discord That’s Making Undisclosed Ads And Faking Kalshi Results.” Also: I wrote on March 18, 2025, that “we are about two years away from a sports gambling ETF,” I have mentioned that prediction a few times since then, and I hope you have marked your calendar. Yesterday the US Securities and Exchange Commission put out a request for comment on “on exchange-traded funds (ETFs) seeking to invest in innovative asset classes or engage in novel investment strategies.” The press release doesn’t mention sports gambling ETFs, and in fact the request itself does not use the word “sports.” But the subject matter is definitely “should we allow sports gambling ETFs”: Over the past several years, sponsors of ETFs have expressed interest in providing exposure to innovative asset classes or using novel investment strategies (“Novel ETFs”). To date, these include: crypto assets; commodity-focused instruments; single‑stock strategies; heightened leverage; blockchain-enabled opportunities; private assets; event contracts; and/or a combination of any of the above.
One thing to notice is that all of these things — crypto ETFs, commodity ETFs, single-stock ETFs, leveraged ETFs, blockchain-enabled whatever, private-asset ETFs — already exist, except for event contract ETFs (sports). The real question is whether to add sports gambling. You can submit comments to the SEC here. My general working assumptions about securities regulation in the second Trump administration are: - Everything is legal, and
- Even if something is illegal, no one is going to stop you.
But this is not any sort of advice and we’ll see! Google Told to Pay Klarna Nearly $2 Billion in Shopping Spat. Binance Cuts Off European Users After Regulator Raises Financial-Crime Concerns. Trump Reports at Least $1.4 Billion in 2025 Crypto Earnings. Trump Reports Receiving About $120,000 in Sports Events Tickets. JPMorgan’s $4 Million ‘Salami Incident’ Is Fueling a Backlash From Banks. BlueCrest loses £200mn legal battle over trader taxes. Saudi Sovereign-Wealth Fund Struggles to Find Winning Investments. US Lifts Export Restrictions on Anthropic’s Fable 5 AI Model. Getty scraps $3.7bn Shutterstock merger after UK watchdog order. KKR plots entry into UK and European pension buyouts. Private-Equity Firms Sell Care Bears to Authentic Brands Group. ‘Taylor Swift Tax’ Stirs Bad Blood With Rhode Island Homeowners. The U.S. Added 1,200 New Millionaires a Day Last Year. AI and crypto wealth driving private jet boom, says Flexjet. Wearing shorts at work. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! | 
