By Helen Chernikoff

NEW YORK, May 26 (Reuters) - MacroMarkets, the company behind the failed IPO of a financial instrument used to bet on U.S. home prices, now plans to launch the concept using a market maker to sell the shares on the open market.

The product consists of two linked trusts -- one "up" and one "down" -- pegged to the S&P/Case-Shiller index of housing prices in 10 cities. Optimists buy shares in the up trust, while pessimists invest in the down trust and if for example the index moves down, a portion of the up shares' value shifts to the down trust. Prices move accordingly.

The original initial public offering failed because there was "insufficient demand for an equal number of Down and Up shares," according to a filing with the U.S. Securities and Exchange Commission.

MacroMarkets Managing Director Terry Loebs said that, under the new plan, the market maker will seed the issue with $20 million. MacroMarkets could not say when the product would start trading.

Both the timing and the combination of an IPO and a product pegged to a moving index proved problematic, said Robert Shiller, the Yale professor of economics who with Karl Case devised the widely watched home price index. Shiller is also a co-founder of MacroMarkets.

"We tried to do something innovative and we tried to do it at a time when the IPO market was just about dead," Shiller told Reuters.

Originally, MacroMarkets set a minimum closing investment pool of $125 million. It extended the auction in an attempt to meet that goal, citing intense interest from institutional investors who needed more time to understand the security and get approval for it internally.

But in the end retail investors showed themselves more willing to take a risk on a new product than institutions, whose gauntlet of committees and procedures make them slower to seize unconventional opportunities, Shiller said.