Commodity Futures Trading Commission initiated a public hearing
on May 19 into the feasibility of futures and binary options
linked to movie box office receipts.
on the contracts was held, but the watchdog’s
commissioners expressed doubts about the validity of the
contracts, though they conceded that US law might prevent them
from banning them.
April the CFTC permitted two box office futures exchanges to
set themselves up – Media Derivatives Exchange and
Cantor Futures Exchange. But there were strong objections from
several heavyweights in the US motion picture industry, the
regulatory approval was slow in coming, and three of the five
commissioners took the unusual step of publicly registering
their doubts about the merits of such futures.
CFTC has not yet approved any contracts for the exchanges, and
has insisted that any new contracts they launch must gain its
hearing centred on the regulatory authority MDEX is seeking for
its futures and options contracts based on the opening weekend
revenues for the film Takers, a movie about bank
robbers. Cantor Futures Exchange hopes to list a contract
linked to four-week box office receipts for The
Expendables, a film about mercenaries starring Sylvester
promising to keep "an open mind" in the hearings, the five CFTC
commissioners in their opening statements all raised issues on
which they wanted clarification.
are a number of questions I have regarding whether these
contracts can serve as a useful hedging tool, how they will be
settled and whether they are susceptible to manipulation," CFTC
commissioner Jill Sommers said.
like the hearings into whether the CFTC should permit the new
exchanges, yesterday’s meeting drew polarised
Pisano, interim chief executive of the Motion Picture
Association of America (MPAA), was particularly dismissive of
the new contracts at the recently launched
accept that there are circumstances when financial engineering
synthetic derivatives play a role, but they certainly
don’t play a role in the process of creating this
uniquely American product," Pisano said. "I think we got
something close to, or indeed, a gambling contract and it
should not be given the cloak of authenticity by being traded
as a future."
added that the MPAA believes there is no need for the new
products. "We have never ever thought about hedging our risk or
selling a movie short, and we never will," Pisano said. "The
first time we do that, the first time we go short against one
of our own movies, it will be the last time we ever work with
those filmmakers, and once that becomes public in the
community, it will be the last time many filmmakers will work
said the new contracts would be easy prey for manipulation,
given the amount of insider information on a film that could
leak. He also questioned the legitimacy of standardising a
movie as a commodity when each is so different.
Jaycobs, president of Cantor Futures Exchange, went to work to
reassure the CFTC, arguing that despite the objections of some
in the movie market – notably the MPAA, the new
products would prove extremely useful for "independent film
producers and others in the motion picture industry" by
expanding the "breadth and depth of financing sources available
to the industry by allowing lenders and investors to hedge
conceded that the new products had not been welcomed by the
MPAA, but he said it was important to recognise that the movie
market was larger than one association.
MPAA represents the six largest studios in Hollywood," Jaycobs
said. "Together these studios largely control the distribution
of films and are uniquely able to fund the large advertising
budgets so crucial to a film’s box office success.
However, it is important to point out that the film industry
consists of many participants."
attempted to allay concerns about manipulation. "Opponents
state that 'the complete lack of any legitimate economic
pricing before the Rentrak numbers are announced prevents any
ability to even identify a manipulated
argued: "The final settlement value of a Domestic Box Office
Receipts contract represents the movie ticket purchases of
millions of American consumers over a period of approximately
four weeks. These purchases are reported by movie theatres,
tabulated by Rentrak Theatrical, and published by studios.
Therefore any effort to manipulate the DBOR
contract’s final settlement value would require
tens of thousands of ticket sales to be under- or
the impassioned testimonies from both sides, the CFTC
commissioners seemed unsure of the new products.
Bart Chilton expressed his doubts. Despite saying the products
were "cool", he said they may just be too narrow to be
"Movie derivatives differ greatly from corn or wheat," Chilton
said. "There is only one producer of a movie, one studio, which
has great influence – even control – over how
well a movie will do."
however, hinted that that despite the
commissioners’ misgivings, the contracts could yet
pass. "Section 5c(c) of the Commodity Exchange Act mandates
that we approve these contracts unless we find they violate the
to the rules of the CFTC, the regulator must rule on the
application within 90 days of the contract submission. This
the commission must act by June 7 on MDEX’s
proposal and by June 28 on that by Cantor Futures
Colin Packham, Sydney firstname.lastname@example.org