Bond trader sets up election futures market

(June 8, 2004) Canadian bond trader Shorcan Group is offering investors a chance to bet on the outcome of this month’s federal election. The Toronto-based firm has set up a futures market and is accepting bids on the election, based on the popular vote percentage of the five main political parties contesting the June 28 vote.

Shorcan plans to donate all of its profits from this initiative to the Boys and Girls Clubs of Canada and is asking investors to do the same.

“The Shorcan Index Election Indicator provides a unique way to track the outcome of the election using a traditional investment product,” says Shorcan Index president Simon Grayson. “This initiative will help to raise awareness of the link between the economy and real events, while having fun and raising money for a good cause.”

The index works like a stock where supply and demand determine the price, Shorcan says. The price quote reflects the percentage of popular vote the party is expected to win, which fluctuates as investors buy and sell.

“For example, assume that one of the political parties has a buy (offer) quote of 35 and a sell (bid) quote of 34. If the investor believes the price (the expected popular vote) will rise, he can buy at 35; if this party gains in popularity, then this investor will make money. Alternatively, if the investor believes this party’s popularity will fall, then he can sell at 34; if this party indeed loses its popularity, then the investor will be in a profitable position.”

At noon on Tuesday, the Shorcan Index showed the Conservatives holding a slight lead over the Liberals with a bid price of 33.4, compared to the Liberals’ 32.1. The NDP were at 18.4, the Bloc at 10.8 and the Greens stood at 4.4.

The minimum investment is $200 and the market is limited to investors in British Columbia, Alberta, Manitoba, and Ontario who are “accredited,” such as securities registrants, businesses, mutual funds and individuals with more than $1,000,000 in assets or more than $200,000 in annual income.

The idea of a futures market linked to political events was pioneered by the University of Iowa, which has offered investors a chance to bet on the last five U.S. presidential elections.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com