2004 US Presidential Vote Share Market
At 11:59am, Central Standard Time, Friday , February 21, 2003, the Iowa Electronic Market (IEM) will open trading in vote-share contracts based on the 2004 Presidential Election. This document describes those contracts and should be viewed as a supplement to the IEM Trader's Manual. Except as specified in this prospectus, trading rules for this market are the same as those specified in the Trader's Manual for the Iowa Electronic Market.
Payoffs in the 2004 Presidential Vote-Share Market will be determined by the percentage of the total two-party popular vote received by the Democratic and Republican candidates in the 2004 U.S. Presidential Election. For instance, contracts for a candidate who receives 32.4% of the popular votes cast for the Democratic and Republican nominees, will be worth 32.4 cents each.
Initially the market will consist of five pairs of contracts representing the Republican presidential nominee matched against each of five possible Democratic Convention outcomes. When the Democratic nominee is determined, all contract pairs related to other Democratic outcomes will expire worthless and be removed from the market.
After the Democratic National Convention is completed, two contracts will remain in the market: one representing the Democratic nominee and one representing the Republican nominee. The payoff to these two contracts will be determined by the percentage of the two-party (Democratic plus Republican) popular vote in the 2004 U. S. Presidential Election received by each candidate.
At market open, the financial contracts traded in this market are:
Code Contract Description CLIN Hillary Clinton BU|CLIN Republican nominee versus Hillary Clinton GEPH Dick Gephardt BU|GEPH Republican nominee versus Dick Gephardt KERR John Kerry BU|KERR Republican nominee versus John Kerry LIEB Joe Lieberman BU|LIEB Republican nominee versus Joe Lieberman ODEM All other Democratic outcomes BU|ODEM Republican nominee versus all other Democratic outcomes
The contract CLIN represents the Democratic candidate, Hillary Clinton. The contract BU|CLIN (read as "BU given CLIN") represents the Republican Nominee in a race against Clinton. If Clinton does not become the official Democratic nominee for President, then these two contracts will expire worthless and will be removed from the market.
Similarly, the other candidate-specific contracts represent specific Democratic candidates and the Republican nominee in a race against that candidate. If the specified candidate does not become the official Democratic nominee for President, then the associated contract pair will expire worthless and will be removed from the market.
The label ODEM represents all other Democratic outcomes. The contract BU|ODEM represents the Republican Nominee in a race against any other Democratic candidate. If a candidate represented by a candidate-specific contract becomes the Democratic nominee for President, then the ODEM and BU|ODEM contracts will expire worthless and will be removed from the market.
Contracts related to specific Democratic candidates will have a non-zero liquidation value only if the associate candidate receives the official Democratic Nomination. The contracts related to the "unspecified" Democratic candidates will have a positive liquidation value only if a candidate not represented by a candidate-specific contract becomes the official Democratic nominee for President.
The label "BU" is used for ease of identification. Throughout the operation of the market, "BU" will always represent the Republican presidential nominee.
Liquidation formulas can be viewed while you are logged into the IEM trading system by clicking on the market name, Pres04_VS, at the upper righthand corner of the market window.
Once each party's nominee has been officially determined, trading in the contracts related to all unnominated candidates will cease and those contracts will expire worthless. The two contracts that remain will represent the official candidates of the Republican and Democratic parties. If one of those candidates subsequently drops out of the Presidential race, his or her contract will denote the person designated as the official replacement by his or her party.
CONTRACT LIQUIDATION VALUES
After the Democratic National Convention is completed and its official nominee determined, all contracts not related to that nominee will be declared worthless and expire. The remaining contracts in this vote-share market will pay off $1.00 times the candidate's share of the two-party popular vote in the 2004 U. S. Presidential Election. Two-party popular vote means the sum of the popular votes cast for the Democratic and Republican nominees.
For purposes of determining liquidation values, we will use the vote shares reported in the New York Times on the Friday after the election. In the event that votes shares are not reported in that edition of the New York Times, we will use the vote shares last reported in the New York Times.
The judgment of the IEM Governors and Directors will be final in resolving questions of interpretation and typographical or clerical errors.
A pair of new candidate-specific contracts will be spun off in this market whenever the closing price for that candidate in the IEM Democratic National Convention Market exceeds $.10 for a period of 7 consecutive days.
When new, candidate-specific contracts are created, they will be spun-off from the ODEM and BU|ODEM contracts. Each ODEM contract will be replaced by two new contracts: a candidate-specific Democratic nominee contract and a new ODEM contract. The new ODEM contract will represent all remaining un-named Democratic candidates in the market. Each BU|ODEM contract will be replaced by two new contracts: a new Republican Nominee versus specified Democratic opponent contract and a new BU|ODEM contract. The new BU|ODEM contract will represent the Republican Nominee's vote share against all remaining un-named Democratic candidates in the market.
No holder of the pre-spinoff contracts will be adversely affected by the spin-off. Traders will receive the same number of each of the new contracts as they held in the original contract, and the sum of the liquidation values of the new contracts will equal the liquidation value of the original contract.
Because the value of the ODEM and BU|ODEM contracts may change when new candidate-specific contracts are spun off, all outstanding ODEM and BU|ODEM bids and asks will be canceled at the time of the spinoff.
Contract spin-offs will be announced in the IEM News Screen at least two days in advance of the spin-off.
THIRD PARTY CANDIDATES
This market is based only on the Democratic and Republican popular vote in the 2004 Presidential Election. It will remain unaffected by the entry of any third party candidates into the race.
Fixed-price bundles consisting of one share of each of the contracts in this market can be purchased from or sold to the IEM system at any time. The price of each bundle is $1.00. Because the percentages of the popular vote received by each candidate must sum to one, the total payoff from holding a bundle consisting of one of each contract until the market closes is $1.00.
To buy or sell fixed-price bundles from the IEM exchange, use the "Market Orders" option from the trading Console. Select the option "Pres04_VS (buy at fixed price)" from the Market Orders list to buy bundles. Select the "Pres04_VS (sell at fixed price)" option to sell bundles. Purchases will be charged to your cash account and sales will be credited to your cash account.
Bundles consisting of one share of each of the contracts in this market may also be purchased and sold at current aggregate market prices rather than the fixed price of $1.00. To buy a market bundle at current ASK prices, use the "Market Order" option as above but select the option "Pres04_VS (buy at market prices)". To sell a bundle at current BID prices, select the option "Pres04_VS (sell at market prices)".
The market will close at noon on Wednesday, the day after the Presidential election. As soon after the election as official election returns are known, liquidation values will be declared and funds will be credited to the cash accounts of the market participants.
All current and newly enrolled IEM traders with US dollar denominated accounts will automatically be given trading rights in the 2004 Presidential Vote Share Market. Access to the market is achieved by choosing Pres04_VS in the "Market Selection" pull-down menu on either the Login-Welcome screen or at the bottom of the Trading Screen.
Funds in a trader's cash account are fungible across markets so new investment deposits are not required. Additional investments up to the maximum of $500 can be made at any time. New traders can open accounts using the IEM OnLine Account Application page at http://iemweb.biz.uiowa.edu/signup. There is a one-time account registration fee of $5.00, and investments are limited to the range of $5.00 to $500.
Requests to withdraw funds may be submitted at any time by completing the IEM's Online Withdrawal Request form or by completing and mailing the paper version of the request form. Additional information about requesting withdrawals is available at tippie.uiowa.edu/iem/accounts/withdrawals.html.