Iowa Electronic Markets Henry B. Tippie College of Business W283 PBB University of Iowa Iowa City, IA 52240 iem@uiowa.edu IEM PROSPECTUS: 1994 TEXAS SENATORIAL RACE VOTE SHARE MARKET At 11:00 a.m. (C.S.T.) Monday, April 13, 1994, the Iowa Electronic Market (IEM) will open trading in a market based on the outcome of the November election to choose the U.S. Senator from Texas. This document describes the contracts in the Winner-Take-All Market on this contest and should be viewed as a supplement to the IEM Trader's Manual. Except as specified in this supplement, trading rules for this market are the same as other markets listed in the IEM Trader's Manual. Payoffs in this market are determined solely by the percentage of the total popular vote each candidate receives in the November 8 general election. For example, contracts for a candidate receiving 32.4% of the popular vote will be worth 32.4 cents. CONTRACTS -- The financial contracts traded in this market are: Code Contract Name DEM Richard Fisher (Democrat) HUTCH Kay Bailey Hutchinson (Republican) ROF Rest of Field This market will close at 11:59 p.m. (C.S.T.) on election day Tuesday, November 8, 1994. As soon thereafter as official election returns are announced, the contracts will be liquidated and funds invested in the market will be distributed to the cash accounts of the market participants. Participants may use these funds to purchase contracts in any other market to which they have access. Participants may also withdraw funds in their cash account on the 15th of any month, with 5 day advance notice (in writing). DETERMINATION OF LIQUIDATION VALUES -- Liquidation values in this market will be determined as follows: Contracts in a candidate will receive $1.00 times that candidate's share of the popular vote in the November 8th election. UNIT PORTFOLIOS -- A unit portfolio consists of one of each of the three contracts listed in the market. This portfolio can be purchased from or sold to the IEM system at any time. The price of each unit portfolio is $1.00. Use the "Purchase" option from the TRADING MENU and enter "S.1$" as the name of the contract to buy unit portfolios. Use the "Sell" option from the TRADING MENU, with "S.1$" as the contract name, to sell unit portfolios. Purchases will be charged to your cash account and sales will be credited to your cash account. Unit portfolios may also be purchased from and sold to other traders at current market prices. Use the Purchase and Sell options as above, but enter "S.MKT" as the contract name. The price charged for such purchases will be determined as the sum of current ask prices, and the price paid for such sales will be the sum of current bid prices. Should no corresponding bid or ask be present for one of the candidates, contracts in that candidate will be excluded from the portfolio; otherwise the number of contracts purchased or sold will be the same in each candidate. MARKET ACCESS -- Current and newly enrolled IEM traders will automatically be given access rights to the Texas Election Markets. Access to these contracts is achieved via the "Market Selection" option on any of the menus. Additional investments up to the maximum of $500 can be made at any time. With five days' advance notice, funds may be withdrawn on the 15th of any month.