Iowa Electronic Markets Henry B. Tippie College of Business W283 PBB University of Iowa Iowa City, IA 52240 iem@uiowa.edu IEM PROSPECTUS: 1994 U.S. CONGRESSIONAL MARKETS At noon (C.D.T.) Friday, June 10, 1994, the Iowa Electronic Market (IEM) will open trading in markets based on the composition of both houses of congress following the November 1994 election. There will be four markets: majority markets for the House of Representatives and the Senate and share of seats markets for the House and the Senate. This document describes these four markets and should be viewed as a supplement to the IEM Trader's Manual. Except as specified in this supplement, trading rules for the 1994 U.S. Congressional Markets are the same as other markets listed in the IEM Trader's Manual. Payoffs in the House Majority Market and the Senate Majority Market will be determined by which party, if any, wins an absolute majority of seats (218 or more in the House and 51 or more in the Senate). In the House Majority Market, contracts for the party which wins a majority of the seats in the next House of Representatives will earn $1.00 each and all other contracts will expire worthless. In the event that neither party wins 218 seats or more, the contracts on this outcome (the "neither" contract) will earn 1 dollar each. The Senate Majority Market will work similarly. Contracts for the party which wins a majority of seats in the next U.S. Senate will earn $1.00 each and all other contracts will expire worthless. There will also be "neither" contracts in this market which will pay $1.00 each if neither party wins 51 seats or more. Payoffs in the House Seats Market and the Senate Seats Market will be determined by the share of seats each party wins. In each market, contracts will be paid $1 times the share of the seats a party wins. Thus, if the Democrats control 55 seats in the next Senate, their contracts in the Senate Seats Market will be paid 55 cents each. CONTRACTS -- The contracts traded are: HOUSE MAJORITY MARKET Code Contract Liquidation Value HM.DEM $1 if Democrats control 218 or more seats in the next House HM.REP $1 if Republicans control 218 or more seats in the next House HM.NONE $1 if neither Dems. or Reps. control 218 or more seats in the next House SENATE MAJORITY MARKET Code Contract Liquidation Value SM.DEM $1 if Democrats control 51 or more seats in the next Senate SM.REP $1 if Republicans control 51 or more seats in the next Senate SM.NONE $1 if neither Dems. or Reps. control 51 or more seats in the next Senate HOUSE SEATS MARKET Code Contract Liquidation Value HS.DEM $1 * Democrats share of seats in the next House HS.REP $1 * Republicans share of seats in the next House HS.OTH $1 * all others share of seats in the next House SENATE SEATS MARKET Code Contract Liquidation Value SS.DEM $1 * Democrats share of seats in the next Senate SS.REP $1 * Republicans share of seats in the next Senate SS.OTH $1 * all others share of seats in the next Senate All four of these markets will close at 11:59 pm (C.S.T.) on election day, Tuesday, November 9, 1994. As soon thereafter as official election returns make it possible to determine the composition of the next House and Senate, liquidation values will be declared and funds invested in the market will be distributed to the cash accounts of the market participants. Participants may also withdraw funds in their cash account on the 15th of any month, with 5 days' advance notice (in writing). UNIT PORTFOLIOS -- Unit portfolios, consisting of one of each of the three contracts listed in the House Majority Market, can be purchased from or sold to the IEM system at any time. The price of each unit portfolio is $1.00. Use the "Purchase" option from the TRADING MENU and enter "HM.1$" as the name of the contract to buy unit portfolios. Use the "Sell" option from the TRADING MENU, with "HM.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 or sold for $1.00 in the other three markets. Use "SM.1$" as the contract name in the Senate Majority Market, "HS.1$ in the House Seats Market, and "SS.1$" in the Senate Seats Market. 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 "HM.MKT" as the contract name in the House Majority Market, "SM.MKT" as the contract name in the Senate Majority Market, "HS.MKT" as the contract name in the House Seats Market, and "SS.MKT" as the contract name in the Senate Seats Market. The price charged for such purchases will be determined as the sum of the 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 -- Any trader who registers to participate in the Congressional Markets will automatically be given access rights to all other political markets. Access is achieved via the "Market Selection" option on the Login, Market and other Menus. 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, however, and with a five day advance notice.