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 protected] or (646) 257-2426.
For media inquiries, please contact Audrey Mullen at [email protected] or (703) 548-1160.
UPDATE: The Hill on ACE…-
They’ve really upped the ante on “qualified” or “accredited” investors. 10 million net for an individual to trade? I am guessing this will be lowered over time, but still unlikely to go below one million. (I’m also guessing this is why Intrade didn’t get approved, they didn’t want to eliminate 99.99% of their users by agreeing to a 10 mil net qualifier. )
Good luck increasing liquidity…
InTrade did get approval for their eBOT. They didn’t follow their plan.
Note: WeatherBill also started with ECPs, and has recently received CFTC approval to fish out on a broader scale. More in a post later on…
Why does the CFTC allow the Cantor Exchange and not InTrade?