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Digital Society


Internet Gambling to Test US Arrogance


We're in charge here. Or else we'll start bombing soon.

The ability of national governments to regulate borderless activities on the
internet will face an important legal test starting on Monday, when jury
selection begins in a US criminal trial challenging the legality of online
gambling.

In the first federal prosecution of a sports gambling operation on the
internet, Jay Cohen, a former stockbroker who runs World Sports Exchange, an
online betting operation in Antigua, is charged with violating a 40-year-old
law against using the telephone to gamble across state or federal borders.

Mr Cohen was indicted after undercover FBI agents in New York placed bets
with his company using its web site alluringly named www.wsex.com and its
toll-free telephone number.

The case could affect the future of online gaming, a rapidly growing business
- worldwide revenues are estimated at $1bn. One internet research group
projects $3bn in revenues by 2002.
But Jim Halpert, a Washington internet lawyer at Piper Marbury Rudnick &
Wolfe, says the importance of the case goes beyond gaming: "This is an
interesting case of asserting jurisdiction over overseas web sites in a
criminal context. It will be closely followed by companies doing business on
the Internet, both in the US and abroad."

Online gambling crystallises the problem of governance in cyberspace: how can
states or nations control Internet activities which affect their citizens,
but originate beyond their borders? When a gambler in New York places a bet
on www.wsex.com, does the act take place in New York (where its legality is
in dispute), in Antigua (where gambling is legal), or in some borderless
world where there are no rules?

In legal documents drawn up for the case, the US attorney says: "Where a bet
is 'placed ' physically, conceptually or otherwise simply does not matter for
purposes of prosecution." The crime occurs when an "interstate wire
communication facility," like the internet, is used to transmit the wager. As
for jurisdiction, the US attorney argues, whenever US citizens are harmed,
extraterritorial action is justified.

"If [web sites] transmit information that comes into this country, then we do
have the legal right to prosecute," says Alan Kefner, chairman of the
Internet gambling working group of the National Association of Attorneys
General.

But internet legal experts say the matter is not so simple. The US Senate
passed a bill late last year aimed at banning Internet gambling but the
measure faces an uncertain future in the House of Representatives.

In the meantime, the Department of Justice "is attempting to deal judicially
with something that legislatures are viewing as just too hard," says Henry
Judy, a member of the American Bar Association's committee on the law of
cyberspace. "This pushes the concept of jurisdiction to its limits."
The Financial Times, February 14, 2000


Digital Society


Did Banks Sabotage Online Bond Trading System?


Innovations in marketmaking.

EuroMTS, the largest electronic trading system for European government bonds,
on Friday accused two of its bank members of trying to sabotage its system.

Gianluka Garbi, chief executive, said it detected two banks bombarding the
system with fake price proposals in an apparent bid to slow it down. "These
banks are behaving like computer hackers," he said.

EuroMTS's 24 member banks include most of Europe's largest as well as leading
US investment banks.

EuroMTS accounts for more than 30 per cent of all trading volumes in European
government bonds and is the main source of liquidity in the market. It
handles E14bn (�8.6bn) worth of transactions a day.

Mr Garbi said the two banks were sending millions of price inputs into the
system but were not trading on their proposals.

EuroMTS is capable of handling 150 price changes a second and would not
crash, but could be slowed down, he said.

Mr Garbi's charges come on the heels of one of the largest incidents of
computer terrorism. Several top web sites, including portal Yahoo.com,
bookseller Amazon.com, eBay, the leading auction site, and CNN's news web
site, came under similar attacks by hackers earlier this week.

He refused to name the two banks but said: "We have warned those banks and we
would have to expel them unless they change their behaviour. Then everyone
would find out who they are."

Mr Garbi said the actions of one of the banks might be due to it experiencing
serious technological problems, but said the other was undoubtedly abusing
the system to undermine EuroMTS. He said that bank was openly advertising a
system competing with EuroMTS.

EuroMTS is the only electronic trading platform not developed by banks or
proprietary traders. It was developed by MTS, the Italian exchange for
government bonds.

It allows large market makers to trade liquid benchmark bonds electronically
rather than by the more time-consuming and expensive over-the-counter method.

However, EuroMTS has fierce competition in electronic bond trading.

Rival systems include Cantor eSpeed, which also plans to open its platform to
internet users, and BrokerTech, which is owned by 12 banks, many of them
members of EuroMTS. BrokerTech plans to start trading US treasuries and key
European government bonds this year.

Some observers accuse Euro MTS of paranoia. "They are simply very nervous
about the competition," one market participant said.
The Financial Times, February 14, 2000

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