IEM Prospectus: Inter-Industry Returns Market
At 9:00am (CDT), Monday, September 23, 2019, the Iowa Electronic Markets (IEM) opened trade in a series of contracts based on the returns of six publicly traded securities. This document describes these contracts. Except as specified in this prospectus, trading rules for these contracts are the same as those specified in the Trader’s Manual for the Iowa Electronic Markets.
CONTRACTS
Each month, a new set of winner-takes-all contracts will be offered in this market. Contract liquidation values will determined by rates of return measured from the third Friday of one month to the third Friday of the next month (see note 1 below).
The liquidation values for these contracts are determined solely by the dividend adjusted rates of return of
- Exxon Mobil Corporation common stock (XOM, listed on NYSE)
- General Motors Company common stock (GM, listed on NYSE),
- Microsoft Corporation common stock (MSFT, listed on NASQAQ),
- Simon Property Group Inc common stock (SPG, listed on NYSE),
- Walgreens Boots Alliance Inc. common stock (WBA, listed on NASQAQ),
- Walt Disney Company common stock (DIS, listed on NYSE).
Whichever of these has the highest rate of return as specified below will pay off $1.00 per contract. All other contracts will pay off zero. (see note 2 below).
Contracts will be designated by a ticker symbol, a letter denoting the month of contract liquidation, and two digits denoting the year of contract liquidation. Thus, the contracts traded in this market for liquidation in month “m” of 20yy are:
| Contract | Company | Description |
| DISmyy | Disney | $1.00 if DIS return is the highest |
| GMmyy | General Motors | $1.00 if GM return is the highest |
| MSFTmyy | Microsoft | $1.00 if MSFT return is the highest |
| SPGmyy | Simon Property | $1.00 if SPG return is the highest |
| WBAmyy | Walgreens | $1.00 if WBA return is the highest |
| XOMmyy | Exxon | $1.00 if XOM return is the highest |
The month code, “m,” refers to the month of liquidation as given by the following table:
| Month | Code | Month | Code | Month | Code | ||
| January | a | May | e | September | i | ||
| February | b | June | f | October | j | ||
| March | c | July | g | November | k | ||
| April | d | August | h | December | l |
COMPUTING RETURNS
We will compute the dividend adjusted rate of return based on closing stock prices of the underlying listed firm between the third Friday in the liquidation month and the third Friday in the previous month. For these purposes, we will use closing prices as reported on the exchange on which the stock is listed (https://www.nasdaq.com/symbol or https://www.nyse.com/quote).
The Dividend Adjusted Rate of Return is calculated as follows: First, we compute the raw return on the underlying stock (the closing price on the third Friday of the liquidation month, minus the closing price from the third Friday of the previous month, plus any dividends on ex-dividend dates). Then, we divide the raw return by the closing stock price from the previous month to arrive at the dividend adjusted rate of return. Note that if a stock splits during the return period, the split will be accounted for as described below in the Contract Liquidation section.
CONTRACT LIQUIDATIONS
Existing contracts will be liquidated by the IEM on the Monday after the third Friday of each month (see note 1 below). The exchange on which the stock is listed (https://www.nasdaq.com/symbol or https://www.nyse.com/quote)will be the official source of closing prices.
If one of the companies is de-listed, the last available closing price will be used as the closing price for determining liquidation values.
If one of the companies undergoes a stock split during the trading period, the closing price of its stock used to calculate payoffs will be adjusted to take account of this split. Specifically if each existing share is split into M shares, then the closing price used to calculate payoffs will be multiplied by M since this represents the value of one pre-split share in the company. Stock dividends will be treated in the same manner.
LISTING NEW CONTRACTS
New contracts will be created by the IEM on the Monday after the third Friday of each month (see note 1 below).
Contracts may be moved across and within market display windows to facilitate access. However, once trading commences in any contract, it will remain listed until the liquidation value is determined.
CONTRACT BUNDLES
For each contract month, fixed price contract bundles consisting of one share of each of the contract for the month 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 month’s listed Inter-Industry contracts will have the highest return, the total payoff from holding a contract bundle until the market closes is $1.00 (see note 2 below for ties).
To buy or sell fixed price contract bundles from the system, use the “Bundle Orders” option from the Trading Console. Select “IntInd_myy” (where “m” designates the contract month and “yy” designates the contract year) and the radio button “Buy at Fixed Price” from the Bundle Orders list to buy bundles of month m year yy contracts. Select “IntInd_myy” and the radio button “Sell at Fixed Price” to sell bundles of month m year yy contracts.
Bundles consisting of one share of each of the contracts for a particular month may also be purchased and sold at current aggregate market prices rather than the fixed price of $1.00. To buy a month m year yy market bundle at current ASK prices, use the “Bundle Orders” option as above but select “IntInd_myy” and the radio button “Buy at Market ASK Prices.” To sell a month m year yy contract bundle at current market BID prices, select “IntInd_myy” and the radio button “Sell at Market BID Prices.”
MARKET ACCESS
Only students enrolled in a course using this market will be given access rights to the Inter-Industry Returns Market. Access to the contracts is achieved via the “Market Selection” pull down menu.
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://iem.uiowa.edu. There is a one-time account activation fee of $5.00. 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. Additional information about requesting withdrawals is available at the IEM website at https://iemweb.biz.uiowa.edu/account-maintenance/withdrawals/.
Note 1: Generally, exchange traded options for the underlying stocks expire on the Saturday following the third Friday of each month. In the event that the options’ expiration dates change for any reason, we will change the dates used to determine contract creations, liquidations, returns and payoffs accordingly.
Note 2: If two or more contracts tie for the highest return, the $1.00 will be divided as evenly as possible among the tied contracts with any residual $0.001’s allocated in order of the highest to lowest final values.