IEM Prospectus: 2002 US House Control Market

At 5:00PM, C.S.T. Wednesday, February 20th the Iowa Electronic Market (IEM) will open trading in a market based the composition of the US House of Representatives after the November 2002 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 House Control Market
will be determined by whether the Republicans increase the number
of seats they hold in the House, maintain an absolute majority
but do not increase their lead, or lose the absolute majority.
The contract that represents the actual outcome of the election
will have a liquidation value of $1.00. All other contracts will
expire worthless.

CONTRACTS

The financial contracts initially traded in this market are:

Code	Contract Description
RH.gain	Republicans win more than 222 House seats
RH.hold	Republicans win more than 217 but no more than 222 House seats
RH.lose	Republicans win 217 or fewer House seats

The contract RH.gain represents the outcome that Republicans
increase the number of seats they now hold in the House; that is,
Republicans hold more than 222 House seats after the election.
The contract RH.hold represents the outcome that Republicans
maintain an absolute majority in the House, but do not increase
their control; that is, Republicans hold more than 217 and less
than or equal to 222 House seats. The contract RH.lose
represents the outcome that Republicans lose an absolute majority
in the House (hold 217 or fewer House seats).

All references to “seats” in this document are to voting seats in
the House of Representatives and specifically exclude those
non-voting seats held by Representatives from American Samoa,
Guam, Puerto Rico, the U.S. Virgin Islands, and the District of
Columbia.

The 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 a News Bulletin on
your WebEx login screen.

DETERMINATION OF LIQUIDATION
VALUES

This 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 5, 2002 elections, Republicans hold 220 House seats, the
contract RH.hold will pay off $1.00 and the contracts RH.gain and
RH.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 House as determined by each member’s declared
party affiliation on the election ballot.

Liquidation formulas can be viewed by first selecting Display
Options and then choosing Liquidation Formulas.

MARKET CLOSING

This market will close at noon, November 6, 2002, the Wednesday of election week. At that
time, or as soon thereafter as official election returns are announced, liquidation values
will be declared and funds credited to the cash accounts of market participants.

CONTRACT BUNDLES

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 unit portfolio
is $1.00. Since exactly one of the represented Congressional compositions will result
from the election, the total payoff from holding a unit portfolio until the market closes is
$1.00.

To buy or sell unit portfolios from the system, use the “Market Orders” option from the
Trading Console.

MARKET ACCESS

Current and newly enrolled IEM traders will automatically be given access rights to the
2002 House Control Market. Access to this market is achieved by logging into
the IEM and choosing “2002_House” from the Navigation Bar.

Funds in a trader’s cash account
are fungible across all markets so new investment deposits are not required. Additional
investments up to the maximum of $500 can be made at any time. Requests to withdraw
funds may be submitted at any time by sending email to the IEM Office (iem@uiowa.edu).