There does not appear to be any California state law precluding the creation of the following means of wagering on which of 2 stocks will outperform the other within an agreed period.
The virtual process envisioned does not involve the purchase or sale of any securities. Neither does the process involve any extension of credit or use of leverage. Therefore, no amount more than that wagered can be lost by the losing bettor.
The virtual process envisions that those wishing to bet on which of 2 stocks, initially limited to those included in the SP500 and traded on a public stock exchange, become members of a club. Club members would state that they were over the age of 21 and recognized that they could lose all the amount wagered.
Members of the club would open an account and deposit at least US$200, the suggested size of the standard betting unit. The suggested period of the standard betting unit would be 30, 90 or 180 days.
Members would indicate the identity of the stocks in the SP500 which they currently believed would outperform other unidentified stocks, or the SP500 index itself, for any of the periods. No commitment would be involved, only information.
The club would then seek to identify stocks favored by other members which might be used by those members in becoming a counterparty to the other member.
The club, acting as a broker, would then advise each of the members of the possibility of there being a bet, if the members agreed as to the terms regarding magnitude or performance differentiation, as occurring by the end of the period. The bet could be for one of the time periods and for an even superiority of performance, based on the last published sale or the 2 stocks, or for some degree of performance superiority. The bet could be for the favored stock simply outperforming the other stock, or by 150% or 200% of the other stock, or SP500 index. The club would include in their calculations the value of the dividends or other distributions impacting the price of the stocks.
The member winning the bet would receive $380 for the $200 bet, which reflected the $200 lost by the member losing the bet, and a deduction of the club’s fee for having arranged the wager. As it is highly unlikely that there could ever be an absolutely equality percentage change in the price of the 2 stocks, at the end of a period, there will always be a winner, loser and earned fee.
There would have been no securities transaction and the loss of the loser would be the amount wagered.
Clearly, the financial return, depending on the length of period, for the winner would be significant, indicating their skill in selecting the better performing stock. Of course, the positive performance differential of the stocks would reflect the price of the stock either being up more or down less.
We believe that many of those following securities markets would find club membership and the prospect of achieving high returns attractive and we welcome a discussion with interested parties.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
14911 Caminito Ladera,
Del Mar, CA 92014
+1 858 793 7100
arthurlipper@gmail.com
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