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In response to
"Can you explain? I don't get what you're saying. -- nm"
by
emoticripple
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ICO is like an HSX IPO except everyone who trades on the market can be involved in setting the ICO price.
Posted by
Inigo (aka Inigo)
Dec 22 '08, 13:00
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Stolen from the cantor boards, here's how ICOs will work:
"Thanks, everyone, for helping us develop the Cantor Exchange and the Movie Box Office Futures contract. We'll be attempting to answer several questions in a series of new Targeted Discussion Boards. PLEASE try to keep any questions or comments within the scope of this discussion. We'll be offering other FAQ topics for discussion over the next few days.
How exactly are Movie Box Office futures prices set?
By traders in the market until the actual box office results are known. It's that simple, and here's how it works...
- About six months before a film is released, the initial price for each movie contract will be determined in a Dutch auction called an Initial Contract Offering ("ICO").
- From the ICO until de-listing all contract prices will be determined by a continuous market much like other futures contracts.
- Four weeks after a film's theatrical wide release, all open contracts will be closed out at a Final Settlement Price equal to the four week box office total.
How does the Initial Contract Offering work?
The initial price for a film's Movie Box Office future contract will be set in a single price, sealed Dutch auction where PUBLIC buyers and PUBLIC sellers can participate on either side of the auction. The purpose of the auction is to maximize liquidity and participation by allowing everyone to buy/sell at a single market price.
To participate in the ICO auction traders will submit orders to buy or to sell the movie contract, including the price they wish to pay (for buyers) or receive (for sellers).
Every Tuesday morning, the buyers with the highest bids and sellers with the lowest offers will be matched to one another until a single ICO price can be determined. In this process, traders will either receive a price equal to or better than their bids and offers - or be told that the bids were too low or their offers to high to be accepted by another trader.
During the week before the ICO auction, Cantor Exchange will run trial auctions to help participants adjust their orders to reflect market interest in that contract.
A detailed analysis of the algorithms used can be found in this auction document.
Is there anything unique about the way prices are set in the continuous trading session?
No, trading will be conducted with bids and offers like most other futures markets. However, all traders should be aware of the 10% price limit that applies to any one day's moves. For example, a contract that closed at $100.00 on Friday night will only be allowed to trade between $90.00 and $110.00 until after Monday night's close.
Are the prices of Movie Box Office contracts made public?
Yes, once Cantor Exchange is open and Movie Box Office contracts are trading, then the public will be able to see all contract prices at CantorExchange.com.
How will the Cantor Exchange market differ from the HSX market in terms of contract pricing?
Movie Box Office Futures contract prices will differ from HSX prices for several reasons. These include:
(1) Cantor Exchange will use a PUBLIC auction to determine the initial price of contracts whereas HSX staff arbitrarily sets the price of an IPO to attract buying interest in the IPO.
(2) Cantor Exchange has no market maker, all trades will be directly between traders whereas HSX has a virtual specialist that makes deep markets in all movie stocks at all times.
(3) On a film's opening weekend, Cantor Exchange will allow the market to trade to its new price subject only to price limits, whereas HSX applies an "ADJUSTMENT" that automatically marks the price to a its new level.
(4) Cantor Exchange's real money markets will mostly likely be more thinly traded than that of the virtual HSX market.
If there are further questions or comments about the Movie Box Office contract pricing, please post below."
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