Regulators approve movie futures market

Yesterday U.S. regulators gave the go ahead for Cantor Futures Exchange, a market that will give speculators a way to bet on expected movie box office receipts.

Yesterday U.S. regulators gave the go ahead for Cantor Futures Exchange, a market that will give speculators a way to bet on expected movie box office receipts.

The major Hollywood studios and cinema chains are staunchly opposed to the trading of movie futures contracts, calling it a form of legalized gambling.

The Motion Picture Association of America has said that they are:

“…united in our opposition to a risky online-wagering service that would be detrimental to the motion picture industry”.

I think they have a point.

Given the amount of people in the industry with access to sensitive information about various projects isn’t there a huge risk of insider trading?

Although studios have apparently already tightened up how tracking numbers (the data that essentially predicts how much a film is going to earn) are released, information will always find a way to get out.

There is a certain irony that this was approved just days after President Obama finally decided to clamp down on the casino-style capitalism of Wall Street banks that almost caused the global financial system to collapse.

Isn’t there a lesson to be learned from the Goldman Sachs story currently unfolding?

Senator Blanche Lincoln (D-Ark.) has included a ban on movie futures trading in the financial reform bill that is set to be debated in a committee today (Wednesday).

Cantor Fitzgerald, the backer of the futures market, said in a statement it appreciated the “excellent work” of the commission, with a final decision expected in June.

My prediction? A major scandal, which is then swiftly adapted into a movie.

After all, this wouldn’t be the first time Hollywood has made a tale about the perils of insider-trading.

One reply on “Regulators approve movie futures market”

There are already dozens, if not hundreds, of web sites right now that offer box office prediction contests and/or promote analytical models and strategies for calculating box office performance.

Box Office receipts can be “wagered” on through many offshore sports books and non-US exchanges such as Intrade. Intrade right now has multiple binary strike contracts on 4 upcoming movies.

If the “cast and crew” of these movies aren’t already making a killing in these markets, perhaps pre-release information on these productions isn’t so secretive after all?

The internet is like “word of mouth” on steroids. Once the movie release is announced, the public will quickly pass judgment on box office expectations. This happens right now in unregulated, purely speculative cyberspace. In fact, the rumor mill started cranking last week about the disaster that the Green Hornet movie is becoming, and that isn’t scheduled for release until December.

The Trend Exchange is targeting institutional traders only, and these contracts would not be available to your average Joe on the street unless they traded them through an intermediated broker who had a clearing relationship with an approved FCM.

However, the Cantor Exchange would allow you to trade these movie futures through your credit card โ€“ not a very safe proposition, IMO. These are two separate business models being proposed. And the CFTC staff TWICE recommended Trend Exchange approval to their commissioners, but the “political animals” that head the CFTC were frightened by the media blitz created by the entertainment industry against it.

And know this – their objections are directly related to the attempts at transparency into box office receipt calculation that these markets would offer.

So much is tied to box office numbers (merchandising, future distribution, compensation, royalties, other contracts) that the studios like to “massage” these numbers to help their bottom line.

These attempts to hold these CORPORATIONS to the same accurate accounting standards that every other business needs to adhere to should be applauded, not condemned!

Also, these products being proposed will be exchange-based, federally-regulated, centrally-cleared instruments. The mortgage-backed derivatives that caused the recent financial meltdown were over-the-counter (OTC), off-exchange, UNREGULATED instruments.

The Trend Exchange will bring this existing, unregulated speculation into a regulated exchange-based marketplace.

These new markets will provide them an option to offset their existing financial risk. Futures trading is about managing risk through price discovery and risk transfer. It is about bringing standards, transparency and integrity to the management of economic risks that already exist.

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