On Tuesday, December 19, 2016, at 11:59am CST, the Iowa Electronic Market (IEM) will open trading in a market based on the composition of the U.S. House of Representatives after the 2018 U.S. elections.
This document describes the 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.
The financial contracts initially traded in this market are:
|RH.gain18||$1 if the Republicans have more than 241 House seats;
|RH.hold18||$1 if Republicans have more than 217 but no more than 241 House seats; $0 otherwise|
|RH.lose18||$1 if Republicans have 217 or fewer House seats;
The contract RH.gain18 represents the outcome that Republicans increase the number of U.S. House seats they hold. For purposes of initial seat count, we use the number of Republican seats as a result of the November 2016 election (241 seats). Thus, the RH.gain18 contract represents the outcome that Republicans hold more than 241 House seats after the 2018 election.
The contract RH.hold18 represents the outcome that Republicans maintain an absolute majority in the House, but do not increase their control; that is, Republicans have more than 217 and less than or equal to 241 House seats.
The contract RH.lose18 represents the outcome that Republicans lose an absolute majority in the House (have 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.
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 2018 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 election data posted on the New York Times official website at 5pm on Wednesday, November 7, 2018, or as soon after as available, will be the official source used to determine the results of the election. In the event that the results are not reported at that website by midnight, Wednesday, November 7, 2018, the Washington Post official website will become the official source. Should neither source report 2018 election results by midnight Wednesday, the information reported in the print version of the New York Times on Thursday, November 8, 2018, or as soon thereafter as reported, will be used.
For purposes of determining payoffs, we will use the composition of the House for the 116th Congress as determined by each member's party affiliation at the time of the election.
In the event that the election is delayed or postponed, liquidation will take place in a timely fashion after the close of polling sites for the popular vote.
In the event that the liquidation values of contracts cannot be determined until after run-off elections are completed, liquidation will occur after a sufficient number of run-off elections are completed so as to determine the liquidation values. In this case, we will count the parties of elected representatives as of the date that they won their respective elections. That is, party changes or vacancies that arise between the general election and runoffs will have no effect on IEM contract values.
If a candidate is nominated by more than one party and one of the parties is a major party (Democrat or Republican), that candidate will be counted according to his or her major party affiliation (Democrat or Republican). If a party goes by multiple designations (such as the Democratic-Farmer-Labor Party of Minnesota) and one of the party designations is a major party (Democrat or Republican), the candidate of that party will be counted according to the party's major party designation (Democrat or Republican).
Liquidation formulas can be viewed while you are logged into the IEM trading system by clicking on Market Info at the upper left-hand corner of the market window.
The judgment of the IEM Governors and Directors will be final in resolving questions of typographical or clerical errors and ambiguities.
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. Outstanding limit orders to buy or sell the contract which is to be spun-off will be canceled just prior to the spin-off.
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 an Announcement on your WebEx login screen.
Fixed price 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 fixed price contract bundle is $1.00. Because exactly one of the listed U.S. House Control contract outcomes will result from the election, the total payoff from holding a contract bundle until the market closes is $1.00.
To buy or sell fixed price contract bundles from the system, use the "Bundle Orders" option from the Trading Console. Select "House18" from the bundles dropdown list and click the radio button "Buy at Fixed Price" to buy bundles. Select "House18" and "Sell at Fixed Price)" to sell bundles.
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 "Bundle Orders" option as above but select "House18" and "Buy at Market Ask Price." To sell a bundle at current market BID prices, select "House18" and "Sell at Market Bid Price."
Bundle purchases will be charged to your cash account and bundle sales will be credited to your cash account.
This market will remain open until contract liquidation. Liquidation values will be credited to the cash accounts of market participants.
Current and newly enrolled IEM traders with U.S. dollar accounts will automatically be given access rights to trade in the 2018 U.S. House Control Market. Access to this market is achieved by logging into the IEM and choosing "House18" from the Navigation Bar.
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 registration fee of $5.00, and 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 or by completing and mailing the paper version of the request form (http://iemweb.biz.uiowa.edu/accounts/cashout.html). Additional information about requesting withdrawals is available at the IEM website at https://iemweb.biz.uiowa.edu/accounts/withdrawals.html.