A political risk prediction market debuts

A new, commercial forecasting site, the American Civics Exchange, has launched as the first US-based market for political futures. Unlike most current prediction market platforms, they hope to  harness collective knowledge to actually  inform decision making. Their target audience is businesses and investors, who they hope to provide an "effective, reliable hedge" against financial exposure to changes in public policy. From their website:

"The Exchange enables trading of political risk through derivative contracts based on the outcomes of underlying events, including changes in tax policy, enactment of proposed legislation, issuance of regulatory decisions, and outcomes of major litigation.

In the past, businesses have used futures markets to hedge their exposure to fluctuations in commodity prices, interest rates, and even the weather. The American Civics Exchange offers a similar risk management solution for political events.

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."

The site seems to have succeeded where other major prediction markets have not: participants will be able to bet REAL money on a platform based in the United States (unlike the murky waters of Intrade and Ireland). The initial public launch is only operating through play money currently, but should be followed shortly by a parallel real money market operating in accordance with the Commodities Exchange Act.

Here are the initial and future selected contracts available for betting:

Initial Real Money Contracts

• Increase in the capital gains or dividend income tax rate
• Enactment of Employee Free Choice Act (union “card check”)
• EPA exemption for California to adopt more stringent emissions standards
• Enactment of “cap and trade” emissions trading system
• Reclassification of a service partner’s “carried interest” in a partnership as ordinary income
• Elimination of the manufacturers’ tax deduction for oil companies
• Increase in the minimum wage

Selected Future Contract

• 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

Ready to jump in and put your money where your mouth is on these major forecasts?

Don't get too excited just yet. A close read of the terms reveals that the following types of individuals are eligible to trade contracts according to Section 1a(12) of the CEA's rules:

1. Individuals with more than $10 million in total assets
2. Individuals with exposure to the relevant underlying risk and more than $5 million in total assets

It looks like about 99% of us are currently shut out.

Flickr Credit: AmandaWalker