American Civics Exchange is enabling what InTrade (circa 2006, when they applied for the eBOT status) couldn’-t…- —-getting the CFTC stamp of approval, and running a real-money prediction exchange from within the US territory (as opposed to offshore). The ACE does not have any direct domestic competitor, right now, but HedgeStreet could enter the political turf, later on.
American Civics Exchange is a play-money and real-money prediction exchange focused on politics. Its contracts pay out depending on whether given political outcomes (e.g. enactment of legislation, regulatory decisions, etc.) take place. The contracts are based on the idea of “-event derivatives”- —-pretty much like the weather derivatives that enable companies that are financially exposed to deviations in temperature (utilities, farms, etc.) to hedge that exposure. The ACE political contracts enable any commercial companies to hedge their financial exposure to things like increased tax rates, enactment of harmful legislation, and adverse regulatory decisions. Speculators are also welcome, of course.
The seven initial contracts are:
- Increase capital gains/dividend income tax rates-
- Elimination of the manufacturers’- tax deduction for oil companies-
- Enactment of “-card check”–
- Enactment of “-cap and trade”–
- The EPA granting California’-s Clean Air Act waiver-
- Increase in the minimum wage-
- Taxation of carried interest as regular income.
The future prediction markets might feature these topics:
- Various new financial services regulations-
- Additional industry bailouts-
- Major healthcare reform-
- FDA drug approvals-
- Windfall profits tax on oil companies-
- Renegotiation/dissolution of existing trade agreements-
- Resolution of major class action lawsuits.
The Delaware-incorporated American Civics Exchange will be operating as an “-exempt board of trade”- pursuant to CFTC regulations, the Commodity Exchange Act, and the Commodity Futures Modernization Act. Last week’-s launch consists solely of the play-money prediction exchange, with free accounts available to the general public. In the coming weeks, the real-money prediction exchange will open shop. Eligible contract participants [see 1(a)12] will then fund their accounts and begin live trading.
UPDATE: On February 10, 2009, the American Civics Exchange received an official acknowledgment from David Stawick, Secretary of the CFTC. The CFTC website, however, does not yet list ACE in their directory of eBOTs. It will, ultimately.
What ACE says (in their media kit) about hedging:
To offset a hypothetical $100,000 negative exposure to a proposed increase in the capital gains tax rate, a market participant would place a bid on 1,000 contracts. If that order were filled at $30, the position would cost $30,000 (excluding transaction costs). Matching such a bid does not require a coincident order to sell 10,000 contracts. As with established exchanges, the liquidity of a robust marketplace of buyers and sellers will enable even large orders to be automatically matched to batched bids submitted by an unlimited number of participants, including both speculators and natural hedgers.
If the tax increase is enacted before 12/31/10, the contract holder would receive $100,000, offsetting the impact of the tax increase. The contract holder can also sell the contract back into the marketplace at the prevailing price at any time before the expiration date, provided another party is willing to purchase the contracts at that price.
Online Futures Market Enables Participants To Hedge Exposure To Political Events
NEW YORK, March 20 /PRNewswire-USNewswire/ —- American Civics Exchangecorp, Inc. announced today that it has launched The American Civics Exchange, the first US-based commercial market for political futures. The Exchange enables traders to hedge and speculate on political risk through derivative contracts based on the outcomes of underlying events, including increases in tax rates, enactment of “-card check”- legislation, increases in minimum wage rates, enactment of “-cap and trade”- legislation, and other legislative, regulatory, and legal outcomes.
The ability to offset exposure to such events using contracts traded on the Exchange will enable risk managers and investors to reduce unwanted risk and protect themselves from adverse political outcomes. All contracts that trade on the Exchange are binary in nature, meaning they settle at $0 or $100, and are fully cash-collateralized, eliminating any counterparty, credit, or clearing risk.
The Exchange’-s initial launch consists of a “-play money”- market for prospective participants and interested members of the general public. This launch will be followed by the roll-out of the “-real money”- market, which will be open only to eligible contract participants (as defined in the Commodity Exchange Act). The play money market will continue to operate parallel to the real money market and will remain available to individuals not eligible to trade in the live market, members of the press, academic and policy researchers, and other interested parties. In coming weeks, the Exchange will phase in additional collaborative and community-based tools for trading and research.
Philip “-Flip”- Pidot, one of the founders and the CEO of the Exchange, said, “-The inauguration of a new Presidential administration and the unprecedented legislative and regulatory changes being considered in response to the financial crisis have only magnified the bottom-line impact of public policy decisions. For the first time, businesses and individuals have a market-based solution to hedge against these uncertain political risks.”-
The American Civics Exchange operates as an Exempt Board of Trade pursuant to federal law and CFTC regulations. Users can register accounts and trade through the secure online trading platform located at http://amciv.com.
Requests for additional information can be directed to email@example.com or (646) 257-2426.
For media inquiries, please contact Audrey Mullen at firstname.lastname@example.org or (703) 548-1160.
UPDATE: The Hill on ACE…-
Scanning the results for the query on “-prediction markets”-, I see that, focusing on the software vendors and prediction market consultants incorporated after the 2003–-2004 starting point (hence, excluding pioneer NewsFutures), Inkling Markets is ranked much higher than Consensus Point.
- No need to wonder why. Adam Siegel (the Inkling Markets CEO) is an active participant in the discussion —-thru his blog, thru comments on Midas Oracle, and thru private e-mails. (I told many times Dave to catch up. Pissing in a violin in order to compose a symphony would have been more fruitful.)
- Having a prestigious “-Chief Scientist”- is not such a determinant. It only impresses a few young, inexperienced and gullible spotty collegians. What makes the difference on the Web is your openness —-more exactly, how much high-quality information you are willing to publish, free of charge, free of advertising, and free of copyright. Take a look at Inkling Markets. Adam Siegel has made the hell of an effort to make available many explainers and case studies on enterprise prediction markets. I don’-t agree with everything he says, but I reckon that he is the only one to make the effort to reach out to web readers.
In the end, whether the judge is Google or Chris Masse, the passing of time is important. It allows us to see thru prediction market people. There are those who matter —-and those who don’-t.
Inkling Markets: 6 / 10
Consensus Point: 5 / 10
Look at the quote at the bottom of this webpage.
UPDATE: They have just brought the Best Buy quote down.
Robin Hanson is now Chief Scientist of Consensus Point.
Here’-s the expanded list of Consensus Point customers —-Fortune-500 firms, mainly.
Here’-s their definition of what is a prediction market.
Here’-s their product page.
With Inkling Markets and NewsFutures, Consensus Point is the co-leader in the enterprise prediction markets space.
Best wishes to all of them.
First, every market price is a prediction. Think of a familiar securities market such as a stock market. The price of a company’s stock is a forecast of the value of future dividend payments. A bond price is a forecast of the value of a defined set of interest payments, based on factors such as likelihood of default and future inflation. Second, markets generate forecasts in a very specific way – by aggregating and consolidating information from many individuals, often widely dispersed, each with access to small, idiosyncratic bits of relevant information.
This informational structure is very common in organizational life. Information within firms is often widely dispersed and undocumented, residing in the minds of employees. Junior level workers, for example, while perhaps knowing little about the overall set of strategic issues affecting their company, often have detailed understandings of isolated aspects of the business.
The fundamental challenges of corporate forecasting are to access and coordinate all relevant bits of information dispersed throughout a company and to consolidate them into a set of quantitative metrics that can be employed as forecasts.
But organizations impose significant constraints on the flow and processing of information. The hierarchy that defines organizational life often restricts the movement of information, from the bottom-up as well as across business units, and sometimes, because of various forms of “politics,” motivates the concealing of information or even the spreading of disinformation. When combined with well-documented effects such as human limitations in expressing complex thoughts and systematic biases in group decision-making, the result is that employees often do not reveal their honest assessments, sometimes because they’re not provided the opportunity and sometimes because they fear reprisal for offering an unpopular opinion. Forecast quality suffers.
Prediction markets offer firms the opportunity to incorporate the information aggregating and predictive power of markets within corporate structures relying primarily on top-down direction. A prediction market is established within a company to generate predictions on issues of interest to managers in a manner that directly addresses the foundational communication constraints within firms.
A “stock” is defined to reflect an issue of interest to managers, perhaps unit sales of a product over a specified future time period. A group of employees – perhaps salespeople and marketing personnel -are selected to participate as traders on the basis of their perceived understanding of future sales prospects. Using software that is commercially available and run as an internet (or intranet) application, the participating employees are provided trading accounts, the stock is assigned an initial value (perhaps reflecting management’s current expectation of sales in the defined period) and a currency is established to provide a medium for exchange.
With the protection of anonymity (eliminating the fear of reprisals for offering unpopular opinions) and a well-defined incentive structure, employees are motivated to acquire relevant information and contribute their best assessments. They buy and sell shares of the security based on their beliefs about future sales prospects and their desire to increase the value of their portfolio. When an employee, for example, observes that the price of the stock is less (or more) than his/her expectation of future sales, he/she will buy (or sell) the stock, thereby driving its price up (or down).
As a result of this dynamic, the stock price serves as an ongoing real-time forecast of future sales. It continuously reflects traders’ aggregated assessment of future sales of the product, in the same way that the trading of a company’s stock on a stock exchange continuously reflects the trading community’s collective assessment of the value of the company.
Several internet-based prediction markets have been functioning for many years, and many companies have implemented prediction markets internally. Performance comparisons reveal that such markets produce forecasts that are more accurate than those from traditional systems.
Prediction markets not only produce forecasts and assessments that are, on average, more accurate than those produced from traditional forecasting approaches at any point in time (because they incorporate more information and less disinformation), but also, because the markets function continuously, will reveal the impacts of new information far faster than any alternative approach. Because the usual disincentives for employees to reveal bad news to managers have been eliminated, this system can in some instances serve as an effective “early warning system.”
The informational content of a prediction market is not limited to the stock price. The underlying bid data can be examined for insights into the knowledge and the beliefs of specific employees and groups within the organization. Analysis of market transactions in prediction markets will identify areas where there is substantial disagreement among employees about future values of key parameters driving the firm’s strategic decisions. Such disagreement, reflecting a collective uncertainty about underlying factual premises and/or interpretations, will highlight areas where the incremental value of additional managerial attention, in the form of information gathering (including perhaps discussion with select employees) and/or analysis, will be particularly high.
There are additional benefits of prediction markets – such as improved decision-making on personnel issues and improved employee morale – that can be realized with the most force when the markets are employed for long time horizons.
Thanks to David Perry of Consensus Point for allowing me to republish this explainer.
Inking Markets and NewsFutures are graded 6 / 10.
Consensus Point and Xpree are graded 5 / 10.
My great friend David Perry of Consensus Point is making a strategic mistake by insisting on discretion and secrecy.
I told him 10 times.
To no avail.
Pissing in a violin in order to create a symphony would have been more fruitful.
PageRank is important.
One day, we will learn in the Wall Street Journal that a Fortune-500 CEO is fired by the board for a low PageRank.
That will happen one day- you will see.
The Prediction Market Consultants
Awesome slides in bold.
Brought to you by Koleman Strumpf (circa November 2007):
Henry Berg, Microsoft <-slides>-
Discussant: Robin Hanson (George Mason Department of Economics) <-slides>-
Christina Ann LaComb, GE (The Imagination Market- abstract is free, text is gated) <-slides>-
Discussant: Marco Ottaviani (Kellogg School of Management, Management and Strategy) <-slides>-
Dawn Keller, Best Buy (Best Buy’s TAGTRADE Market) <-slides>-
Bo Cowgill, Google (Putting Crowd Wisdom to Work) <-slides>-
Jim Lavoie, Co-Founder and CEO, Rite-Solutions <-slides>-
David Perry, Co-Founder and President, Consensus Point <-slides>-
Mat Fogarty, Founder and CEO, Xpree Inc <-slides>-
Tom W. Bell, Chapman University School of Law <-slides>-