UBC-ESM

The UBC Election Stock Market
for the 1995/96 British Columbia Provincial Election
TRADER'S MANUAL


Directors:
Thomas Ross, James Brander, Joyce Berg and Robert Forsythe

Governors:
Michael Goldberg,
Dean of the Faculty of Commerce and Business Administration, University of British Columbia;
David Bond,
Vice-President and Chief Economist, Hong Kong Bank of Canada

Market Administrator: Brian Kapalka

Computing/Programming Services:
University Computing Services - UBC
Drew Letcher - Iowa

Administrative office:
Room 15, Faculty of Commerce and Business Administration
University of British Columbia,
Vancouver, B.C. V6T 1Z2
Tel: (604) 822-8614
Fax: (604) 822-8477
E-mail: ubcesm@commerce.ubc.ca

Opening Date/Time:
12:00 noon PDT, Monday October 2, 1995

Closing Date/Time:
Midnight Pacific Time the evening before the election (date TBA)


Faculty of Commerce and Business Administration
University of British Columbia

September 18, 1995


The UBC-ESM is organized to permit the trading of contracts with payoffs based on the outcome of the 1995/96 British Columbia Provincial Election. Registered participants invest funds and trade contracts on a 24-hour, computerized market. All invested funds and cash deposits will be repaid to registered participants after the close of the market. The market operates an a computer reached through the University of British Columbia. Access is initially to be limited to telnet connections on the Internet (address: esm.commerce.ubc.ca). As the election approaches, dial-in access will be provided as well.


UBC-ESM
THE UBC ELECTION STOCK MARKET

The 1995/96 UBC Election Stock Market is a financial market in which the ultimate values of the contracts being traded are based on the outcome of the 1995/96 British Columbia Provincial election. Participants invest their own funds, buy and sell listed contracts, and bear the risk of losing money as well as earning profits.

The UBC-ESM is operated as a not-for-profit venture. As described in this manual, the method of issuing contracts and making final payoffs on these contracts ensures that the UBC-ESM does not realize financial profits or suffer losses. No commissions or transactions fees will be charged.

The exclusive purposes for conducting this market are teaching and research. Through the UBC-ESM, participants learn first-hand about the operation of a financial market and, because they have an added incentive to do so, they often become better informed about not only the current election but also the election process itself. As a research project, the UBC-ESM generates valuable data that will provide insights into market and trader behaviour. Participation in the UBC-ESM is open to all.


UBC-ESM
THE UBC ELECTION STOCK MARKET
TRADER'S MANUAL

Table of Contents

© Copyright, 1995, Ross, Brander and Forsythe; adapted, with permission, from IPSM - Iowa Political Stock Market Trader's Manual by R. Forsythe, F. Nelson, G. Neumann and J. Wright, copyright Forsythe, Nelson, Neumann and Wright.


OVERVIEW

The UBC Election Stock Market (UBC-ESM) is an exchange in which traders buy and sell financial contracts representing political parties in real elections. This year the exchange opens on October 2, 1995 and it now includes three markets related to the 1995/96 British Columbia Provincial Election.[1] The principal market is the Seats Market in which six contracts are listed, one representing each major political party contesting the 1995/96 B.C. Provincial election: the BC Reform Party (BCR), Liberal Party (LIB), New Democratic Party (NDP), Progressive Democratic Alliance (PDA), Social Credit Party (SC); and a sixth representing "Other" parties and individuals contesting the election (OT). For ease of exposition we shall hereafter refer to "Other" as a sixth party. The ultimate payoff from owning a contract for a party will be a liquidation value determined as $1.00 times that party's share of the seats in the B.C. Legislative Assembly after the election. Contracts are initially placed in circulation through the purchase of blocks of contracts (Unit Portfolios) from the UBC-ESM. A unit portfolio consists of six contracts, one in each of the parties, and the cost of that portfolio is $1.00.[2]

The second market is the Majority Government Market in which three contracts are traded, corresponding to a Liberal majority government (M.LIB); a New Democratic Party majority government (M.NDP); and a final contract corresponding to neither of the above (M.NE) -- i.e. neither a Liberal nor an NDP majority. Upon liquidation in this market, each contract in a party pays $1 or $0 depending upon whether that party won a majority. If neither the Liberal nor the NDP parties win a majority, each contract in M.NE will pay $1. This could be due to the fact that some other party won a majority or to the fact that no party won a majority. As above, contracts are initially placed in circulation through the purchase of unit portfolios from the UBC-ESM. In this case, a unit portfolio consists of three contracts (one each of M.LIB, M.NDP and M.NE) and costs $1.

The third market is the Popular Vote Market in which six contracts are traded; as in the Seats Market there is one contract representing each major political party (i.e. P.BCR, P.LIB, P.NDP, P.PDA, P.SC -- the "P." identifying these as contracts in the Popular Vote Market) and a sixth representing "Other" parties and individuals contesting the election (P.OT). The ultimate payoff from owning a contract for a party in this market will be a liquidation value determined as $1.00 times that party's share of the provincial popular vote in the election. Again, contracts are initially placed in circulation through the purchase of blocks of contracts (Unit Portfolios) from the UBC-ESM. A unit portfolio in the Popular Vote Market consists of six contracts, one in each of the parties, and the cost of that portfolio is $1.00.

Participants invest in the market by making cash deposits with the Market Administrator. A trading account is opened in the trader's name and the amount invested is posted to the trader's cash account. The minimum deposit required to open an account is $5.00, and the maximum amount that may be invested is $1,000.00 per account. Upon entry to the market (and any time up to the closing of the market just prior to the election), a trader can purchase new unit portfolios from the UBC-ESM and then trade the individual contracts with other traders.

All receipts from market participants will be held on deposit by the University of British Columbia until the market closes on election day and liquidation values have been determined. At that time, liquidation values earned in all markets plus the balance in a trader's cash account will be paid to the trader. Any interest earned while the funds are held in deposit by the University will be used to help cover the costs of operating the market.

Trading takes place continuously from opening day, October 2, 1995, until the market closes at midnight (Pacific time) on the evening before the election. The computerized market is operated in conjunction with Iowa Electronic Markets at the University of Iowa. Traders connect to the market via telnet and dial-in connections to the University of British Columbia. (Note: Dial-in access will not be available at market opening.) Current market prices in all three markets can be observed by anyone with access to the Internet or with dial-in capability, but only registered participants can make orders and conduct transactions. This market has most of the features of a futures market. However, it does not allow short sales or margin purchases. Specifically, no trade can be undertaken unless the seller has possession of the contract to be sold and the buyer has a sufficient cash account deposit to cover the purchase.

The remainder of this manual is divided into two sections. The first section details trading rules and restrictions -- it shall be presumed that any participant in the market has read and understood the market specifications contained therein. The second section serves as a reference manual for access to the computerized market. In this section, the procedures for logging into the market and executing transactions are described.

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TRADING RULES

This document describes the Seats Market which is the principal market in the 1995/96 UBC Election Stock Market. The other markets, the Majority Government Market and the Popular Vote Market, employ the same trading rules except for certain key features such as the definition of contracts, the determination of liquidation values and the composition of unit portfolios. The differences are detailed in the Market Prospectus for these markets in Appendices D and E of this document.

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ENROLMENT, ACCOUNTS AND INVESTMENTS

Aspiring traders may enrol in the market at any time prior to the final close prior to the election by contacting the Market Administrator. New traders will be given an account in the UBC-ESM and assigned an account name and password. The minimum investment accepted is $5.00. Additional amounts may be invested at any time up to a maximum of $1,000.00 per account. All funds invested in the market will be credited to the trader's cash account and placed in a bank account at the University of British Columbia where they will be held until after the federal election. At that time payoffs to investors will be determined and all funds invested will be redistributed among registered traders as explained under Payoffs below. Funds in a trader's cash account can be applied to transactions in any of the three markets.

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SURVEYS

Since this market is part of an ongoing research project, we wish to collect demographic and preference information about the traders in the UBC-ESM. From time to time, a survey may appear on your screen immediately after you log into the market. The first, and longest, of these surveys is intended to collect demographic information on market participants. It will appear on the screen of newly enroled traders when they first log into their accounts. Subsequent surveys may, for example, ask for opinions about recent political events or preferences for parties and should rarely exceed 6-8 questions. When a survey appears on your screen, you will also see the number of questions it contains. While traders are not required to respond to any of these surveys and can advance beyond the survey screen at any time, their cooperation will help make this research project a success.

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NEWS BULLETINS

Market news will also be broadcast through the survey screens. These should be rare but will announce market news of interest. A bulletin will appear on your screen only once.

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CONTRACTS

Six contracts are listed in the Seats Market: Contracts can be thought of as shares in political parties. Each contract entitles the holder to a liquidation value determined by the share of seats won by that party in the election. The "Other" contract will carry a liquidation value determined by the share of seats won by candidates not affiliated with any of the five other listed parties.

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PORTFOLIO PURCHASES AND LIQUIDATIONS

Upon entering the market (and any time thereafter until the market closes), a trader can convert funds in his or her cash account into unit portfolios. Each unit portfolio consists of a set of contracts, one of each type in the market. Thus, each unit portfolio in the Seats Market consists of six contracts; one for each of the six parties. The cost of each unit portfolio is $1.00. Likewise, unit portfolios consisting of one contract in each party may be redeemed at any time for $1.00, with the proceeds to be deposited in the trader's cash account.

The purchase of unit portfolios results in the issuance of new contracts in the parties involved. Liquidation of unit portfolios has the effect of removing the contracts involved from circulation. Since each unit portfolio in the Seats Market consists of one contract in each party in the market, there will always be an equal number of contracts in each party in circulation at any time. Portfolios may also be purchased at market prices. In this case a portfolio consists of one contract of each party for which there are ask prices posted in the market. The cost of this portfolio is the sum of these ask prices. Notice that when there is an ask price posted for each party this portfolio consists of one contract of each party in the market, but that when there is not an ask price posted for a contract, that contract will not be part of the purchase. Likewise, portfolios may also be sold at market prices. This portfolio would consist of one contract of each party for which there are bid prices posted in the market and would sell at the sum of these bid prices.

Details on how to make these portfolio purchases and liquidations are given in the sections Purchase at market price and Sell at market price below.

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PAYOFFS

The entire market will close at midnight (Pacific Time) on the evening before the election. As soon thereafter as official election returns are announced, liquidation values will be declared and all funds invested in the market will be redistributed among market participants.[3] Distribution in this market will be determined as follows: for each contract in a party which a trader owns as of the close of the market, the trader will receive $1.00 times that party's share of the seats won in the B.C. Legislative Assembly. Distributions to each trader will include the total of liquidation values on all contracts owned plus any amount which remains in his or her cash account.

Example:

          The 1991 B.C. provincial election led to the following
          distribution of seats in the Legislative Assembly:
          NDP - 68%, Liberals - 23%  and Social Credit - 9%.
          If this result was exactly repeated in 1995/96,
          a contract in the NDP would pay a liquidation value,
          L(NDP), of
			L(NDP) = .68 x $1.00 = $0.68
          Each LIB contract would pay:
                        L(LIB) = .23 x $1.00 = $0.23
          Each SC contract would pay:
                        L(SC)  = .09 x $1.00 = $0.09
          And each BCR, PDA and OT contract would pay nothing
                        (i.e. L(BCR) = L(PDA) = L(OT) = 0).

          If Trader Jack Jones has $10.00 in his cash account and holds
          4 NDP contracts, 2 LIB contracts and 1 SC contract when the
          market closes, the final disbursement to him will be $13.27:
          $10.00 + (4 x $.68) + (2 x $.23) + (1 x $.09) = $13.27 .

As explained under Portfolio Purchases above, there always will be an equal number of contracts in each party, and the issue price for each unit portfolio consisting of one contract in each party is $1.00. The sum of liquidation values on a unit portfolio in any market will also be exactly $1.00. Thus, the total of all liquidation values paid on contracts in circulation after the election will exactly match the total issue price of those contracts. This payoff method guarantees that the UBC-ESM will not suffer financial losses or realize financial gains from market investments.

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MARKET ACCESS

The UBC-ESM operates on a computer that is part of Iowa Electronic Markets at the University of Iowa. Access to the market is via a telnet connection through the University of British Columbia. As the election approaches a special dial-in service will be opened which will allow traders without their own access to the Internet to connect to the market by dialling in to UBC.[4] The methods available to each trader depend on the location of the trader and the type of computer or terminal the trader will use. Details of the mechanics of access are to be found in APPENDIX C below, and further assistance is available from the UBC-ESM Market Administrator.

After connecting to Iowa Electronic Markets (IEM), traders will see a variety of markets currently being operated by IEM, including markets on elections in other countries. After logging in, traders will be placed in the UBC-ESM and will be able to use their accounts to effect trades in the three UBC-ESM markets. Without registering separately with IEM, traders will not be able to participate (i.e. trade) in any of the other markets IEM is operating.

Entry into the market reveals information about current market prices and trading history for each of the contracts in a particular market. Trading of contracts in the market does require prior enrolment and assignment of an account. After entering a market, participants may log into their individual accounts to gain access to private information, including their current cash balance, contract holdings, outstanding orders, order history, and contract purchases and sales. From here, traders can exit from the market or initiate market activity.

The system includes a practice market which enables new and potential traders to become accustomed to the mechanics of trading without risking their own funds. This practice market operates exactly like the UBC-ESM except with regard to the name of the contracts. The contracts listed in this market are fictitious. The practice market can be accessed through any of 26 public accounts -- use of an account ID consisting of three identical letters, "AAA", "BBB", etc. through "ZZZ" (with passwords consisting of the single characters "A", "B", etc. through "Z", respectively) will invoke the practice market.[5] Traders who would like to practice taking market actions (e.g. entering an order or making a trade) are urged to first try taking these actions in this practice market.

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MARKET ACTIONS

The actions that can be undertaken by logged-in traders are placing a bid (an order to buy), placing an ask (an order to sell), withdrawing an outstanding bid or ask, making a purchase at the current market price, and executing a sale at the market price.

Placing a "Bid"

A bid is an order to buy in the form exemplified by "I bid $.532 per contract for 4 contracts of LIB, and this bid is good for 3 days". That is, a bid specifies a party, a price, a number of contracts, and a time limit. Bid prices must fall in the range from $0.001 (one-tenth of a cent) to $1.00, and time limits must be expressed in full days between 1 and 999.[6] There is no restriction on the number of contracts in a bid, except that it must be positive. Note that the market system will take receipt of bids even if the total value of the bid (price x number of contracts) exceeds the trader's cash account balance. But, as explained below under Feasibility Checks, it will not allow trades to result from bids which would make the trader's cash account show a negative balance.

Note that bids should be thought of as "standing" or "limit" orders. They will not result in immediate trades unless some other trader has previously submitted an order to sell contracts in the same party at the same or a lower price. If not, the bid is placed in a queue to await acceptance by another trader.

Placing an "Ask"

An ask is an order to sell; an example is "I offer to sell 4 NDP contracts for $.540 per contract and this order is good for 2 days". As with bids, an ask specifies a party, a price, a number of contracts, and a time limit. Ask prices must lie in the range $0.001 (one-tenth of a cent) to $1.00 and time limits must be between 1 and 999 days. The number of contracts in an ask must be positive. Note that the market system will take receipt of asks even if the number of contracts offered exceeds the trader's portfolio holdings. But, as explained under Feasibility Checks below, it will not allow trades unless the seller owns the contracts he or she offers for sale.

Asks should be thought of as "standing" or "limit" orders. They will not result in immediate trades unless some other trader has previously submitted an order to buy contracts in the same party at the same or a higher price. If not, the ask is placed in a queue to await acceptance by another trader.

Withdrawing a bid or an ask (Withdrawing current order)

At any time a trader may request a list of his or her own outstanding bids and asks from the system. Any of these orders may be withdrawn. To withdraw an order, a trader enters the contract name and the order number that he or she wishes to withdraw. If the trader enters an order number "0" then ALL orders for the designated contract will be withdrawn. Note that outstanding orders cannot be revised by the trader, but those orders can be withdrawn and new orders submitted. Orders cannot be withdrawn after they have been accepted by another trader; any failure of an attempt to withdraw an order is likely due to acceptance of it by another trader before the order to withdraw reached the system.

Purchase at market price

A purchase order is an order to buy one or more contracts at an outstanding ask price; an example is "I offer to buy 4 SC contracts at the current market price." Provided your cash account balance is large enough to cover the transaction, a purchase order will result in the immediate acquisition of one or more contracts. The price you pay is determined by the lowest price of any asks previously submitted by other traders. The number of contracts bought is constrained by the number in your order, the number available from other traders at the current low ask price, and, of course, by the balance in your cash account. This means of acquiring contracts is somewhat quicker, but less flexible and more transitory than the submission of a bid. You need not specify either a price or a time limit with a purchase order. But if the number of contracts you order to buy exceeds the number available at the current low ask price, the residual purchase order is simply cancelled; it does not remain in a queue for later acceptance by another trader.

As noted under Portfolio Purchases And Liquidations there are two "special contracts" you can purchase in the market. The first is a unit portfolio consisting of one contract of each party in the market. You can purchase as many portfolios as you wish at this price if you enter "1$" as the name of the contract you wish to buy. The price of each unit portfolio is set to one dollar. The second "special" contract allows you to buy a portfolio of contracts at a price equal to the sum of the ask prices on those contracts. If there are ask prices posted on all listed contracts in a market then this is also a portfolio consisting of one contract in each party listed in the market. If you enter "MKT" as the name of the contract you wish to buy, the price of this contract will be set equal to the sum of the posted ask prices of all contracts in the market.[7] Just as with any other purchase you will be prompted to give the maximum number of portfolios you are willing to buy at this price. As explained in the section Execution Of Trades below, you will be unable to buy the "MKT" contract if any of the current ask prices are yours since that would constitute a self trade.

Example:

        Currently in  the  market there are outstanding ask orders  on
        only  three  of  the  six contracts: the LIB  asking  price is
        $0.25, the NDP asking  price is $0.15 and the OT asking  price
        is $0.10.   Trader  Janet  Jones  places  the  order  MKT  and
        specifies  that she  wants  10  of these portfolios.   In this
        case, each MKT  portfolio will include one LIB  contract,  one
        NDP  contract and one  OT  contract and will  cost $0.50.  All
        this  Janet Jones knows from the information on the screen  in
        front of her.  What she does not know is how many contracts of
        party are available at the ask prices listed.  The system will
        only process the number of  MKT trades possible at the  listed
        ask  prices.   In  this  case,  there  are  25  LIB  contracts
        available at  the  listed ask  price, but only 5 NDP contracts
        and  only  2 OT  contracts.  Therefore, the system  will  only
        transfer two contracts each of LIB, REF and OT to  Janet Jones
        and will deduct only $1 from her cash account. The rest of her
        order will be cancelled.

Sell at market price

A sell order is an order to sell one or more contracts at an outstanding bid price; an example is "I offer to sell 4 PDA contracts at the current market price." Provided your portfolio includes the contracts you offer to sell, a sell order will result in the immediate sale of one or more contracts. The price you receive is determined by the highest price of any bids previously submitted by other traders. The number of contracts you sell is constrained by the number in your order, the number requested by other traders at the current high bid price, and, of course, by the number in your portfolio. This means of selling contracts is somewhat quicker, but less flexible and more transitory than the submission of an ask. You need not specify either a price or a time limit with a sell order. But if the number of contracts you offer to sell exceeds the number other traders are willing to buy at the current high bid price, the residual sell order is simply cancelled; it does not remain in a queue for later acceptance by another trader.

As noted under Portfolio Purchases And Liquidations there are also two "special" contracts you can sell in the market. The first is a unit portfolio consisting of one contract of each party in a market. If you enter "1$" as the name of the contract you wish to sell, the price of this unit portfolio will be set to one dollar and you can sell as many portfolios you wish at this price. The second "special" contract allows you to sell a portfolio of contracts at a price equal to the sum of the bid prices on those contracts. If there are bid prices posted on all listed contracts in a market then this is also a portfolio consisting of one contract of each party listed in the market. If you enter "MKT" as the name of the contract you wish to buy, the price of this contract will be set equal to the sum of the bid prices of all contracts in the market.[8]available then the trader will be able to sell all 25 MKT portfolios. However, if there are only 15 BCR contracts wanted at the current bid price, the trader will be able to sell only 15 MKT portfolios. The rest of the trader's order will be cancelled. Just as with any other purchase you will be prompted to give the maximum number of portfolios you are willing to sell at this price. As explained in the section Execution Of Trades below, you will be unable to sell the "MKT" contract if any of the current bid prices are yours since that would constitute a self trade.

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BID AND ASK QUEUES

When bids and asks are submitted by traders they are placed by the system in "Bid Queues" and "Ask Queues", respectively. Each queue is ordered according to price and time of issuance; if two or more orders at the same price appear in a queue they are entered by time with older orders appearing ahead of newer orders. The prices displayed to traders when they log into the market are the highest bid price in the Bid Queue and the lowest ask price in the Ask Queue. If no price is displayed it is because the corresponding queue is empty. Orders remain in the queues until they are withdrawn by the trader who issued them, they expire, they are accepted by another trader and result in a trade, or they are removed by the system due to infeasibility.[9] Expirations are determined according to the terms of the order. The other outcomes are explained below.

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EXECUTION OF TRADES

Trades are executed whenever a purchase or sell order is submitted, the bid price of a new order to buy meets or exceeds the lowest ask price in the Ask Queue, or the ask price of a new order to sell is less than or equal to the highest bid price in the Bid Queue. A complete description of the process resulting in a trade is as follows: whenever a new bid or ask moves to the front of a queue and passes the feasibility check, the system immediately checks for a possible trade. Specifically, if the highest bid price on a contract equals or exceeds the lowest ask price, then the system executes a trade between the bidder and asker. If the bid price and asking price are not identical, then the price used is the one from the older of the two orders. If the number contracts ordered in the bid and ask are not the same, then the number of contracts traded is the smaller of the two. The system handles all bookkeeping for such a trade -- the cash account of the bidder is reduced by the value of the trade (price x number of contracts), the cash account of the seller is increased by the value of the trade, and the contracts are moved from the portfolio of the seller to the portfolio of the buyer. Finally, the orders are checked for removal from the queues. If the number of contracts traded exhausts the number ordered in either the bid or the ask, that order is removed from its queue. Otherwise, the order is reduced by the number of contracts traded, and the modified order remains in the front of its queue.

The process resulting from the arrival of a purchase or sell order is similar except in the determination of the transaction price and in the fate of an unfilled order. When a purchase order is executed, the price used is the price of the lowest ask in the ask queue, and when a sell order is executed, the price used is the price of the highest bid in the bid queue. In both cases, if the order exceeds the number of contracts available at that price, the remainder of the order is cancelled without being placed in the respective queue.

Note that the system will not allow self trades. When the current high bid price meets or exceeds the current low ask, the system checks to see if the same trader submitted both orders. If so, the order involving the smaller quantity is cancelled, the order with the larger quantity is modified by reducing the quantity ordered a like amount, and an entry noting these changes is entered in the trader's history file. Similarly, any attempt to buy or sell the "MKT" contract will not be permitted if some part of the transaction involves a self trade. Thus, you will be unable to buy one contract of each party at the sum of the posted ask prices if one or more of those ask prices are yours. Likewise, you will be unable to sell one contract of each party at the sum of the posted bid prices if one or more of those bids are yours.

It will sometimes appear that a trade that "should have" occurred did not. For example, you observe on the screen that NDP currently has an ask price of $0.530. You place an order to buy 3 contracts of NDP at $0.550. The system then informs you that your bid has been entered into the market but does not tell you that a trade occurred. This can happen for any of three reasons. The first is that your order was infeasible and was thus cancelled. The second is that someone beat you to it. Like most markets, there will be several participants and allocation is first-come, first-served. Computers are fast, but they cannot always change the screen information frequently enough to keep up with market. The third reason is that both the bid and ask were submitted by you and the orders were cancelled or modified because of the prohibition against self trades explained in the preceding paragraph.

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FEASIBILITY CHECKS

As noted above, infeasible orders (bids, asks, purchase orders and sell orders) may be submitted but can never result in trades. Each order is checked for feasibility when, and only when, it reaches the front of a queue, and no order can result in a trade before it reaches the front of its respective queue.

A feasibility check for a bid or purchase order amounts to a check of the prospective buyer's cash account as to whether or not there is enough money to pay for at least one contract. If buying even one contract would result in a negative balance, the bid will be stricken from the queue. A feasibility check for an ask or sell order involves checking the contract holdings of the prospective seller. If the trader owns none of the ordered contracts so that execution of the order would result in negative contract holdings, the order will be stricken from the queue. While a trade is being executed, feasibility checks are applied one contract at a time rather than to the full order. When an order fails the feasibility check and is stricken from its queue, an entry noting that action is placed in the trader's history file for later reference.

Example:

        The current  high bid on the market  for  the  LIB contract is
        $0.535, the low ask is $0.550, and trader Sam Jones has $10.80
        in his cash  account.   Jones submits  a  bid  to  buy  30 LIB
        contracts at $0.540.  Since this bid exceeds the previous high
        bid  and  Jones  has sufficient  cash  to  buy  at  least  one
        contract, his bid passes the  feasibility test and becomes the
        market high bid.  Later that day, trader Jane Smith submits an
        ask, offering to sell 40 LIB contracts at $0.538.   The system
        recognizes that this new ask is lower than the market high bid
        of  $0.540  and thus  executes  a trade  of  twenty  contracts
        between Smith and  Jones.  But after  those 20 contracts  have
        traded, Jones' cash account falls to  $0.00 so the feasibility
        test on his remaining bid fails.   Jones is allowed to buy the
        twenty contracts, but his remaining bid for ten more contracts
        is stricken from the queue and a note to that effect is placed
        in his  trading history file.   Smith's ask becomes the market
        low ask at $0.538 and the next highest bid  of $0.535 is moved
        back to the front of the bid queue.

Feasibility checks are performed when an order reaches the front of a queue to insure that at least one contract can be traded at that price. They are not performed prior to this because portfolios (cash account balances and contract holdings) may change over time, and such changes may alter the outcome of the feasibility check on any one order -- an order that is feasible when issued may become infeasible while it sits in its queue because of other changes in the trader's portfolio, and an order which is infeasible upon issue may become feasible before it reaches the front of its queue. Note that the orders in the front of each queue are rechecked for feasibility after each transaction to insure that the portfolio changes resulting from the transaction did not alter the feasibility of the front orders in other queues.

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ANONYMITY

All trading and all bids to buy and offers to sell are anonymous. The system will of course know the identity - more precisely the computer account - of each trader, the source of all bids and asks, the number and specifications of all bids and asks in the queues, and the portfolios of each trader. But, each trader will have only that information which applies to his or her own account. Public information about the market is restricted to current high bid, low ask and last trade prices, and summaries of prices and trading volumes over previous time periods.

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SECURITY

Because this market involves real cash transactions, security of the computer system is a major concern. Academic systems are, by design, less than ideal for maintaining strict security. Although many precautions have been taken in the design of the market system, a dedicated hacker may be able to penetrate the system. The surest defense against such activity is for traders to guard their account number and password closely. Note that the system allows traders to change their password and they are encouraged to do so. Any string from one to eight letters or numbers can be used for passwords. The Market Administrator will know only the trader's initial password and cannot recover a password that has been changed. Should a trader forget his or her current password, the administrator can change the current password back to the initial password, allowing the trader to again login to the market and change it to a personalized code. The UBC-ESM assumes no responsibility for unauthorized access to individual accounts. In the unlikely event that the system is corrupted, the market will be restored to its position as of the most recent time it is known to be uncorrupted.

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TRADING MECHANICS

The UBC-ESM operates on a computer operated by Iowa Electronic Markets (IEM) at the University of Iowa. Access to the market is through a telnet connection to the University of British Columbia. Eventually a special dial-in service will be available for traders who have no other access to the Internet. Details of the mechanics of access are to be found in APPENDIX C below, and further assistance is available from the UBC-ESM Market Administrator. Consult the section of that Appendix for the instructions appropriate for your situation, and follow those instructions to attach to the market. After a short delay you will see a screen which appears as in Figure 1. The system selects one of the markets at random to present on this screen (it may be one of the other IEM markets and not a UBC-ESM market); the descriptions and illustrations below that relate to the Seats Market extend to the other markets as well. The features of this screen display are described below. Study that description well before proceeding. The market is "menu driven" -- you will undertake actions on the market by selecting options from the menu presented to you. A schematic diagram of the menus appears in Appendix B, and the options they present are explained below.

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APPENDIX A -- GLOSSARY

Action
Anything that can happen to an outstanding bid or ask. Possible actions are: a sale, an expiry of an order, withdrawal of an order, cancellation of an order due to infeasibility.
Ask
An ask is an offer to sell a contract (technically referred to here as an "order to sell"). An ask will require specifying the contract name, the price, the number of contracts you wish to sell, and the number of days until the ask expires. For example you could "ask" for $0.35 per contract for 5 LIB contracts for 5 days.
Ask queue
The list of currently active asks. The system keeps them in order from lowest price to highest price. If there is more than one ask with the same ask price, these are listed from oldest to newest.
Bid
A bid is an offer to buy a contract (technically referred to here as an "order to buy"). To make a bid you have to specify the contract type, the price, the number of contracts you want, and the number of days until the bid expires.
Bid queue
The list of currently active bids. The system keeps them in order from highest bid price to lowest bid price. If there is more than one bid with the same price, these are listed from oldest to newest.
Closing Price
In most stock markets this refers to the last price a contract traded at prior to the market closing for the day. Since the UBC-ESM does not close until the election, there is no "closing price" in the normal sense until the election. However the term closing price is sometimes used in the UBC-ESM to refer to the last price a contract traded at before midnight.
Contract
The basic items that are being bought and sold in the market. In the UBC-ESM the available contracts in the Seats Market are indicated by BCR, LIB, NDP, PDA, SC, OT. In the Majority Government market the available contracts are indicated by M.LIB, M.NDP, M.NE. In the Popular Vote Market the available contracts are identified by P.BCR, P.LIB, P.NDP, P.PDA, P.SC, and P.OT.
Feasibility constraints
You cannot sell contracts that you do not own. You cannot buy contracts that you do not have enough cash in your account to pay for.
Liquidation value
The dollar value paid out to the owner of a contract after the election. Each contract will have its own liquidation value depending on the results of the election and the terms of the contract.
Market
Where things are bought or sold. The UBC-ESM contains three markets: the Seats Market, the Majority Government Market, and the Popular Vote Market.
Order
Either a bid or an ask.
Portfolio
A list of the contracts held and the cash balance for a trader. Each trader has his or her own portfolio.
Trade
The sale of one or more contracts.
Trader
Any registered participant in the UBC-ESM.
Transaction
The sale of one or more contracts. The same as a "trade".
Unit portfolio
A unit portfolio contains one unit of each contract that is traded in that market. Since there are two markets, there are two different unit portfolios. A unit portfolio can be either bought from the system, or sold back to the system, for $1.00 at any time when the market is open.

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APPENDIX B -- MARKET MENU TREE

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APPENDIX C -- MARKET ACCESS

Feasible and preferable means of access to the UBC-ESM will depend on your location and the nature of the terminal or computer you will use for market transactions. The three means of entry are summarized as follows:

A Request: If you can connect via the Internet or through dial-in, we would ask you to please use the Internet method as much as possible. Dial-in time is costly for the UBC-ESM and with a limit to the number of dial-in connections possible at one time, more intensive use of the Internet service will help us reduce dial-in congestion.

When the dial-in service is open, we will have to limit the connection time available to all (i.e. dial-in and Internet) traders. Traders will be logged out automatically after 30 minutes. (This limit could be revised as we go along.)

Use the list above to determine the method appropriate for your situation and then consult the corresponding section below for details of market access procedures.

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APPENDIX D: MARKET PROSPECTUS: MAJORITY GOVERNMENT MARKET

The presence or absence of a majority position is a significant feature of the outcome in any Canadian federal or provincial election. For this reason, UBC-ESM is operating a second market to gauge traders' perceptions about the likelihood of either of the two largest parties winning a majority.

CONTRACTS -- Three contracts are listed in the Majority Government Market:

These contracts can also be thought of as shares in political parties.

LIQUIDATION VALUES -- in this market each contract entitles the holder to a liquidation value of either $1 or $0. A contract will have a liquidation value of $1 if the party specified in that contract wins a majority (greater than but not equal to 50% of the seats) in the B.C. Legislative Assembly. A single M.NE contract will pay $1 if neither the Liberal Party nor the NDP wins a majority. This could happen if a third party wins a majority or if no party wins a majority. It is important to recognize that one (and only one) of these events, which we term "majority outcomes", must happen.

There are 75 Legislative Assembly seats to be contested in the upcoming election. For the purposes of this market, a Liberal Majority will be said to be the outcome if the Liberal Party wins 38 or more seats according to the writs returned after the general election; and an NDP majority will be the outcome if the NDP wins 38 or more seats by that date. Because we want to close down the market and make payoffs in a timely fashion, it will not matter for the purposes of payoffs here if later elections in ridings in which voting had to be postponed or court decisions on the admissibility of ballots in some ridings alters the majority outcome.

UNIT PORTFOLIOS -- Each unit portfolio in the Majority Government Market consists of three contracts; one in each of the majority outcomes. Each unit portfolio costs $1 and unit portfolios can be bought from or sold to the UBC-ESM system at any time. To purchase unit portfolios in this market, first make sure you are currently logged into this market and from the TRADING MENU select the "Purchase" option and then choose contract "1$". Use the "Sell" option from the TRADING MENU, with "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.

MKT PORTFOLIOS -- Portfolios that include all contracts with current ask prices can be purchased using the "MKT" contract in the "Purchase" option of the TRADING MENU. The price charged for such purchases will be determined as the sum of current ask prices. Similarly, sales of portfolios of all contracts with currently listed bid prices can be sold using the "MKT" contract in the "Sell" option of the TRADING MENU. 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 contracts, that contract will be excluded from the portfolio; otherwise, the number purchased or sold will be the same in each contract. The "MKT" contract works here in a way analogous to that in the Seats Market, and the trader wishing more details about this feature should consult the "Purchase at Market Price" and "Sell at Market Price" sections of that part of the Trading Manual.

MARKET ACCESS -- All traders who have opened accounts with UBC-ESM will have access to this market as well as to the Seats Market. 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 there is no need for separate cash accounts.

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APPENDIX E: MARKET PROSPECTUS: POPULAR VOTE MARKET

In this market, contract liquidation values depend on the percentages of the popular votes garnered by the political parties in the 1995/96 B.C. Provincial Election. This Appendix describes the Popular Vote Market; except for the differences specified hereinafter, trading rules for the Popular Vote Market are as described in the TRADER'S MANUAL.

CONTRACTS -- There are six contracts listed in the Popular Vote Market:

For expositional convenience, "Others" will also be referred to as a political party.

LIQUIDATION VALUES -- In this market each share in a party entitles the holder to receive $1.00 times the percentage of the popular vote won nationwide by that party. The popular vote percentages will be based on the results from the return of the writs after the elections. Because we want to close down the market and make payoffs in a timely fashion, it will not matter for the purposes of payoffs if later elections in ridings in which voting had to be postponed or court decisions on the admissibility of ballots in some ridings alter the popular vote percentages.

UNIT PORTFOLIOS -- Each unit portfolio in the Popular Vote Market consists of a set of six contracts---one for each of the six parties. Each unit portfolio costs $1 and unit portfolios can be bought from or sold to the UBC-ESM system at any time. To purchase unit portfolios in this market, first make sure you are currently logged into this market and from the TRADING MENU select the "Purchase" option and then choose contract "1$". Use the "Sell" option from the TRADING MENU, with "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.

MKT PORTFOLIOS -- Portfolios that include all contracts with current ask prices can be purchased using the "MKT" contract in the "Purchase" option of the TRADING MENU. The price charged for such purchases will be determined as the sum of current ask prices. Similarly, sales of portfolios of all contracts with currently listed bid prices can be sold using the "MKT" contract in the "Sell" option of the TRADING MENU. 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 contracts, that contract will be excluded from the portfolio; otherwise, the number purchased or sold will be the same in each contract. The "MKT" contract works here in a way analogous to that in the Seats Market, and the trader wishing more details about this feature should consult the "Purchase at Market Price" and "Sell at Market Price" sections of that part of the Trading Manual.

MARKET ACCESS -- All traders who have opened accounts with UBC-ESM will have access to this market as well as to all previously opened 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 there is no need for separate cash accounts.


The UBC Election Stock Market
1995/96 British Columbia Provincial Election Market


Application for Trading Rights



Name: ______________________________  Social Insurance No.: _______________
									   
University Affiliation (if any):   Student   Faculty   Staff		   
									   
University:     ___________________________________________________________
									   
Occupation (if no university affiliation):  _______________________________
									   
Phone: (Office) _______________________    (Home) _________________________

E-mail:         ___________________________________________________________
									   
Office Address: ___________________________________________________________

                ___________________________________________________________
									   
Home Address:   ___________________________________________________________

                ___________________________________________________________
    (Final payments will be sent to your home address shortly after the
    election. It is your responsibility to notify the UBC-ESM of any
    address change.)

Initial Investment  $______________________
    (Minimum $5.00, maximum $1,000.00.  Additional investments up to the
    $1,000.00 maximum can be made at any time.)

A Question:  Based on our past experience, we have reason to believe
that members of the media might from time to time ask to speak to some of
our traders.  On some of these occasions, may we give them your name to
contact? Circle one:   YES    NO   .


I have received my copy of the Trader's Manual for the 1995/96 UBC Election Stock Market, and I have reviewed the trading rules and mechanics described therein. I agree to abide by these rules and procedures, and I realize that I bear the risk of losing money as well as earning profits through my participation in the UBC Election Stock Market. I waive and release any and all claims against the University of British Columbia and its employees and all other participating colleges and universities and their employees. Signature: ____________________________________ Date: ____________________________________ Checks should be made payable to UBC-ESM. Mail or deliver the completed application form and payment to:

UBC-ESM / Faculty of Commerce and Business Administration / University of British Columbia / Vancouver, B.C. V6T 1Z2 UBC-ESM Directors: Thomas Ross, James Brander, Joyce Berg, Robert Forsythe Market Administrator: Brian Kapalka (604-822-8614) For UBC-ESM use only: +--------------+--------------+--------------+--------------+--------------+ | | | | | | | | | | | | +-----id-------+------pw------+------enr-----+-----mkt------+------rec-----+



Footnotes

[1] At the time of writing this manual the election has not been called. The writs for the election must be dropped by November 12, 1996 and the election held no later than early December 1996. [Back]

[2]Notice that this system ensures that the UBC-ESM does not realize financial profits or suffer losses from operating the market. The sum of the shares of Legislative Assembly seats across parties is necessarily one; thus, the sum of the liquidation values to be paid on all of the contracts in each $1.00 unit portfolio issued in the Seats Market will be $1.00. Units of contracts are entered into circulation only through the issuance of unit portfolios, and while subsequent trading may redistribute those contracts among market participants there will always be the same number of contracts outstanding in each candidate listed in a given market. The total of dividend payments made by the UBC-ESM will exactly equal $1.00 times the total number of unit portfolios purchased by all traders. The same is clearly true of the other two markets -- all the money invested by traders will be paid back out in the form of liquidation payments.[Back]

[3] Liquidation values will be based on results from the return of the writs after the elections. The writs are typically returned within about two weeks of the election. The results on this date are taken as final, even if they are in fact subsequently changed due to, for example, court challenges that result in some ballots being disallowed. If elections in some ridings are delayed for any reason (e.g. due to the death of a candidate) the liquidation values will be calculated based on the fraction of decided seats each party has won (according to the writs) when the writs are returned. [Back]

[4]While local telephone access, when provided, will be free of charge, the UBC-ESM will not provide toll-free long-distance phone access or pay long distance telephone charges.[Back]

[5] If a trader tries to log into the practice market under, for example, MMM and the system does not let him or her on, it could be because there is already someone currently active in the practice market using that ID. The trader should try again using another ID. [Back]

[6]Outstanding orders are checked for expiration once each day just after midnight. Thus, an order with a time limit of one day would expire at midnight on the day the order was submitted. [Back]

[7] Only contracts with listed ask prices will be included in the MKT portfolio, and the system will sell only the number of MKT portfolios that it has available at current ask prices. These points are illustrated in the next example in the text. [Back]

[8] Analogous to the case discussed above related to Purchase at Market Price of the MKT portfolio, sales of MKT will involve the transfer of contracts only if those contracts have current bid prices. Also, the system will only let a trader sell the number of MKT portfolios that can be sold at current bid prices. For example, suppose a trader wants to sell 25 MKT portfolios when only BCR and PDA have outstanding bids on the system. If at current bid prices there are 25 BCR contracts and 25 PDA contracts [Back]

[9]On rare occasions orders may also be cancelled by the Market Administrator. [Back]