DARPA offers a futures market on Mideast events
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A Defense Department effort to allow futures trading on the likelihood of predicted Middle Eastern events draws condemnation on Capitol Hill.
The Defense Advanced Research Projects Agency is setting up an online market for futures traders to buy and sell contracts on Middle Eastern events, betting that investment trends will provide indications of the likelihood of the events actually occurring.
The Policy Analysis Market, at www.policyanalysismarket.org, will let traders begin registering online Aug. 1. Online training for registered traders begins Sept.1 and live trading is scheduled to begin Oct. 1.
But two senators, at a Capitol Hill press conference Monday, called the project offensive, a waste of money and "just plain stupid."
"We want to close this program immediately," Sen. Byron L. Dorgan (D-N.D.) said.
Dorgan and Sen. Ron Wyden (D-Ore.) said that if DARPA does not shut down the program, known as PAM, the pair of lawmakers will use legislation to shut it down.
Wyden already is the author of legislation increasing congressional oversight of DARPA's controversial Terrorism Information Awareness program.
The lawmakers decried the initiative as gambling and said it could be used by terrorists to their finance operations by investing in futures for events they intend to carry out. Dorgan and Wyden pointed out that futures markets traditionally involve contracts on the future value of commodities, such as orange juice or sowbellies.
The lawmakers raised the possibility that PAM could run afoul of the Securities and Exchange Commission or of Internet gambling laws.
PAM is a collaboration between DARPA and several private-sector organizations. It is billed on its Web site as a "market in the future of the Middle East." It is based on the fact that intelligence and business analysts often use prices in futures markets as indicators of trends and events. PAM creates a market for buying contracts on the likelihood of specific events that could influence the economic, civil and military future of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and Turkey.
The market will offer three types of quarterly contracts: Contracts on indices that track the economic health, civil stability and military disposition of the countries; contracts on indices that track global economic and conflict indicators; and contracts on the probability of specific events.
In the last category, the site gives an example: "U.S. recognition of Palestine in the first quarter of 2005."
Traders will buy contracts based on whether or not they think the events will happen or on which direction they believe indices will go. Prices would vary according to the likelihood of the events. Contracts would pay off at the end of the specified time period for events to occur.
Net Exchange, the San Diego company that designed and developed PAM, will run the trading system. The Economist Intelligence Unit of the Economist Group, publishers of The Economist magazine, will work with Net Exchange to collect and process data on which the PAM securities are based.
Initially, DARPA will limit the site to 1,000 traders, but it expects to expand to 10,000 traders by January. The goal is to create an economically self-supporting program.
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