NEW YORK (CNN/Money) -
A shelved Pentagon plan to create a market allowing traders to bet on the likelihood of events in the Middle East has been revived by the private firm that helped develop it.
But the new version of the Policy Analysis Market (PAM) will not include any securities based on forecasts of violent events such as assassinations or terror attacks, in an effort to avoid the kind of criticism that sank the project this summer.
CNN/Money incorrectly reported Monday that the market would be much like the one that was backed by the Defense Department, which would have allowed traders to create contracts for, say, whether Yasser Arafat would be assassinated.
But subsequent e-mail correspondence with Charles Polk, president of San Diego-based Net Exchange, the company trying to relaunch the market, made it clear that traders won't be able to create contracts for such events. The possibility of such a contract under the first plan ignited a political firestorm that forced the Pentagon to drop its support for the market.
Polk said the U.S. government will not be involved in this attempt to launch the market.
The market will still allow traders to buy and sell contracts on political and economic events in the Middle East, but only on questions that have a positive or neutral slant -- such as "Iraqi oil exports will exceed 2 million barrels a day during the third quarter of 2004."
"The potential that violent contingencies could have been offered for trade in the [Pentagon]-backed PAM completely eclipsed the true intent and merit of that research project," Polk said in an e-mail Tuesday. "To include such contingencies again would undermine the effort to demonstrate the technology because we would never get to the merits."
The initial announcement on the project's Web site Monday made no mention of the fact that the updated market would be different from the Pentagon project. On Tuesday, Net Exchange posted a new announcement to its Web site saying that no bets on violent events would be permitted.
The market, which is scheduled to start trading next spring, was originally developed and funded with the assistance of the Defense Department, whose officials cited the uncanny ability of other futures markets to predict election results, weather patterns and other complex events.
Heated public criticism forced the Pentagon to end its association with the project. Polk told CNN/Money that the company got about $600,000 from the Pentagon during a relationship that lasted about two years.
The Pentagon's other partner in the venture would have been the Economist Intelligence Unit, publisher of the Economist magazine, but the Economist is no longer involved.
Polk noted the market is designed mainly as a research tool, not unlike the Iowa Electronics Markets, which have shown an ability to predict the outcomes of presidential elections.
"It is potentially an interesting alternative to Gallup polls or to specialists reporting from the region," Polk said in a telephone interview Monday. "It's a way of going directly to individuals in the region or outside who have knowledge or interest in the political and economic events in the area."
Polk said Net Exchange would initially limit the amount of money traders could invest in the market, and that the kinds of questions the market will address should help ease concerns that the market could be manipulated by terrorists.
"There are no financial incentives for nefarious activities," Polk said.
These were the kinds of concerns that drove much of the criticism of the project this summer.
Democrats expressed moral outrage at the prospect of a "betting parlor on atrocities and terrorism," in the words of Sen. Ron Wyden, D-Oregon, while Republicans -- including Deputy Defense Secretary Paul Wolfowitz -- acknowledged the project subjected the Bush administration to charges of callousness.
But after the project was shelved, some observers expressed disappointment, saying the market could be useful, given the accuracy of the Iowa futures markets, TradeSports' Saddam Hussein futures market and others. Net Exchange said "many individuals" encouraged it to start the project up again.
Former Admiral John Poindexter, who was forced to leave the Pentagon in part because of his association with the project, will not be involved in the market, Polk said.
More information about the specific workings of the market will be available in December.