2004 US Senate Control
On Friday, June 18, 2004, at 1:00pm CDT the Iowa Electronic Market (IEM) will open trading in a market based the composition of the US Senate after the 2004 U.S. elections. This document describes that market and should be viewed as a supplement to the 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.
Contract liquidation values in this winner-takes-all Senate Control Market will be determined by whether the Republicans increase the number of seats they hold in the Senate, maintain an absolute majority but do not increase their lead, or lose the absolute majority. The outcome of the U.S. Presidential election and the party of the elected vice-president will not affect the payoffs in this market. The contract that represents the actual outcome of the election will have a liquidation value of $1.00. All other contracts will expire worthless.
CONTRACTSThe financial contracts initially traded in this market are:
Code Contract Description RS.gain Republicans win more than 51 Senate seats RS.hold Republicans win 51 Senate seats RS.lose Republicans win 50 or fewer Senate seats
The contract RS.gain represents the outcome that Republicans increase the number of seats they now hold in the Senate; that is, Republicans hold more than 51 Senate seats after the election. The contract RS.hold represents the outcome that Republicans maintain an absolute majority in the Senate, but do not increase their control; that is, Republicans hold exactly 51 Senate seats. The contract RS.lose represents the outcome that Republicans lose an absolute majority in the Senate (hold 50 or fewer Senate seats).
DETERMINATION OF LIQUIDATION VALUESThis market is a winner-takes-all market. The contract that denotes the actual outcome of the election will have a $1.00 liquidation value; all others will expire worthless. For example, if as a result of the November 2, 2004 elections, Republicans hold 51 Senate seats, the contract RS.hold will pay off $1.00 and the contracts RS.gain and RS.lose will each expire worthless.
The New York Times will be our official source of election results. For purposes of determining payoffs, we will use the composition of the Senate as determined by each member's party affiliation at the time of the election. For newly elected Senators, this will be their party affiliations as shown on the election ballot. For Senators not standing for re-election, this will be their party affiliations as reported in the most recent Congressional Quarterly Weekly Report at the time of the election. In the event that the election is delayed or postponed, liquidation will take place in a timely fashion after the close of polling sites for the popular vote.
Liquidation formulas can be viewed by first selecting Display Options and then choosing Liquidation Formulas.
The judgment of the IEM Directors will be final in resolving questions of interpretation and typographical or clerical errors.
CONTRACT SPIN-OFFSThe Directors of the IEM reserve the right to introduce new contracts to the market as spin-offs of existing contracts. When a contract spin-off occurs, an original contract will be replaced by new contracts which divide the payoff range of the original contract into sub-intervals. No holder of the pre-spinoff contracts will be adversely affected. Traders will receive the same number of each of the new contracts as they held in the original, and the sum of the liquidation values of the new contracts will equal the liquidation value of the original. Decisions to spin-off a contract will be announced at least two days in advance of the spin-off. The new contract names, the specifications regarding liquidation values and the timing of the spin-off will be included in the announcement. This announcement will appear as an Announcement on your WebEx login screen.
CONTRACT BUNDLESFixed price contract 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 fixed price contract bundle is $1.00. Because exactly one of the listed U.S. Senate compositions will result from the election, the total payoff from holding a fixed price contract bundle until the market closes is $1.00.
To buy or sell fixed price contract bundles from the system, use the "Market Orders" option from the Trading Console. Select "Senate04 (buy at fixed price)" from the Market Orders list to buy bundles. Select "Senate04 (sell at fixed price)" to sell bundles.
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 "Senate04 (buy at market prices)." To sell a bundle at current market BID prices, select "Senate04 (sell at market prices)."
Bundle purchases will be charged to your cash account and bundle sales will be credited to your cash account.
MARKET CLOSINGThis market will remain open until contract liquidation. Liquidation values will be credited to the cash accounts of market participants.
MARKET ACCESSCurrent and newly enrolled IEM traders will automatically be given access rights to the 2004 Senate Control Market. Access to this market is achieved by logging into the IEM and choosing "Senate04" from the Navigation Bar.
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 https://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.