National Post's Financial Post & FP Investing (Canada)

             July 30, 2003 Wednesday All but Toronto / Late Edition

SECTION Financial Post News; Pg. FP3

LENGTH 444 words

HEADLINE Pentagon scrubs Internet futures market on Mideast terrorism Volley
of criticism

SOURCE Reuters

BYLINE Deborah Zabarenko

DATELINE WASHINGTON

BODY
WASHINGTON - The Pentagon yesterday scrapped a planned online futures market
that aimed to get information on Middle East events by letting investors bet on
the probability of wars, terrorist attacks and assassinations.

   One day after Democrats in Congress brought the Pentagon's Policy Analysis 
Market to light with withering criticism, a Defense Department spokesman said
the program had been terminated.

   "The director has determined that this is a program that under further
scrutiny probably doesn't deserve continued support," spokesman Lawrence Di Rita
told reporters.

   Earlier, Deputy Defense Secretary Paul Wolfowitz told senators that while the
Defense Department was supposed to be imaginative, "it sounds like maybe they
got too imaginative."

   U.S. senators released a letter saying the program's funding would be
eliminated and Sen. John Warner, a Virginia Republican who is chairman of the
powerful armed services committee, called the plan "a very significant mistake."

   The Policy Analysis Market, launched online at
http//www.policyanalysismarket.org by the Pentagon's Defense Advanced Research
Projects Agency, aimed to let anonymous traders wager money on when and whether
such events as the overthrow of the Jordanian monarchy might take place.

   The market planned to focus at first on economic, civil and military futures
of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria and Turkey, and the
impact of U.S. involvement with these countries, according to the Web site.

   Traders were to begin registering on Friday, with trading set to start Oct.
1. The program was expected to cost US $8-million initially.

   The idea was seen as a means of aiding the Pentagon to predict terror events
as part of its search for ways to prevent attacks, based on the predictive
abilities of the markets.

   "The price discovery process, with the prospect of profit and at pain of
loss, is at the core of a market's predictive power," the program's concept
overview said.

   The plan would have allowed traders to buy futures contracts priced on the
certainty of a particular event occurring in the Middle East. Investors could
make money by spotting whether the contracts were over or under-priced.

   One market analyst took a dim view.

   "From one end, creating a futures market on terrorism makes sense because
markets have major predictive powers," said Phil Flynn, vice-president and
senior market analyst with Alaron Trading Corp. in Chicago. "But not only could
it help the good guys, it could also help the bad guys. The terrorists could use
the same information that these markets provided to see where we would be the
most vulnerable."