IEM Prospectus:
SpongeBob SquarePants Movie Box Office
Winner-Takes-All Market

At noon, Central Time, Friday, November 5, 2004, the Iowa Electronic Market (IEM) will open trading in contracts based on box office receipts for the movie, "SpongeBob SquarePants.” 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.

All contracts in this market (Movie_SBob) are winner-takes-all contracts. Liquidation values for these contracts will be determined by box office receipts for the movie "SpongeBob SquarePants" during the period November 19, 2004 to and including December 17, 2004.


Contracts

The set of contracts initially traded in the market Movie_SBob are:

Code Contract Description
SBob060L     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are lower than or equal to $60 million; zero otherwise
SBob070L     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are greater than $60 million and lower than or equal to $70 million; zero otherwise
SBob080L     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are greater than $70 million and lower than or equal to $80 million; zero otherwise
SBob090L     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are greater than $80 million and lower than or equal to $90 million; zero otherwise
SBob100L     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are greater than $90 million and lower than or equal to $100 million; zero otherwise
SBob100H     $1.00 if "SpongeBob SquarePants" official box office receipts for the 11/19-12/17 period are greater than $100 million; zero otherwise

 

The IEM reserves the right to introduce new contracts as described in the "Contract Spin-offs" section below. Once a contract is listed, it will remain listed until liquidation.


Contract Liquidation

The liquidation values for these contracts will be determined by box office receipts for the period November 19, 2004 to December 17, 2004, inclusive, as published in Variety's Domestic Box Office Report under the heading "Cumulative Reported B.O." Note that the box office receipts for the period 12/18/2004-12/19/2004 are NOT included in the figure used for the liquidation values. In the event that the movie is not listed in this report, we will use FILMSOURCE from AC Neilsen EDI, Inc. (www.entdata.com), the official source for the box office receipts reported in Variety, as our source. The judgment of the IEM Governors and Directors will be final in resolving questions of typographical or clerical errors in these reports.

The expected opening date for "SpongeBob SquarePants" is November 19, 2004. Liquidation values will depend, however, on total box office receipts during the 11/19/2004-12/17/2004 interval regardless of the actual opening date. For example, if the movie fails to open by 12/17/2004, the lowest denominated contract (initially, SBob060L) will pay $1 and all others will pay $0.

Liquidation formulas can be viewed on the IEM trading screen by "clicking" on the name of the market, "Movie_SBob".


Contract Spin-Offs

The Directors of the IEM reserve the right to introduce new contracts to the market as spin-offs of existing contracts. 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 which would be paid to the original in the absence of a spinoff.

If the trading price of a particular contract becomes unusually high, the Directors of the IEM may authorize a contract spin-off. When a contract spin-off occurs, the original contract will be replaced by two new contracts which divide the payoff range of the original contract into two intervals. For instance, if a contract spin-off is authorized for SBob090L, each trader holding an SBob090L contract would receive two new contracts in its place: SBobxxL (that would pay off $1 if box office receipts were higher than $80 million, but lower than or equal to $xx million), and a new SBob090L (that would pay off $1 if box office receipts were higher than $xx million, but lower than or equal to $90 million). Note that these contracts split the original payoff range (higher than $80 million, and lower than or equal to $90 million) into two new intervals. Since the value of the two new contracts can differ from that of the old contract, all outstanding bids and asks for the original contract will be canceled at the time of the spin-off.

All decisions to spin-off a contract will be announced at least two days in advance of the spin-off, and the new contract names and the timing of the spin-off will be included in the announcement. This announcement will appear as a News Bulletin on your IEM login screen.


Market Closing

The market will close at noon on Friday, December 17, 2004. As soon after that time as the official results are known, liquidation values will be declared and funds will be credited to the cash accounts of the market participants.


Contract Bundles

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 exactly one of the listed outcomes will occur, 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 "Movie_SBob (buy at fixed price)" from the Market Orders list buy bundles. Select the "Movie_SBob (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 "Movie_SBob (buy at market prices)". To sell a bundle at current BID prices, select the option "Movie_SBob (sell at market prices)".


Market Access

Only IEM traders enrolled in the daytime MBA 6N:211 course will be given access rights to the SpongeBob SquarePants Movie Box Office Market. Access to the market is achieved via the "Market Selection" pull-down menu on either the Login-Welcome screen or at the bottom of the Trading Screen.

Funds in SpongeBob SquarePants trading accounts are not fungible across markets until after the SpongeBob SquarePants contracts are liquidated. 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).