From the June 01, 2010 issue of Futures Magazine • Subscribe!

Movie futures bring on drama

Drama is heating up over the quest to establish futures based on box office receipts. Facing pushback from the Senate and the motion picture industry, Cantor Futures Exchange and Media Derivatives, Inc. (MDEX), both seeking approval for futures contracts based on box office receipts, received approval by the CFTC as designated contract markets in mid-April. The CFTC is still reviewing the box office receipts contracts.

The current regulatory reform bill under consideration in the Senate, The Wall Street Transparency and Accountability Act of 2010, contains a provision to ban trading on motion picture receipts. Backlash against the contracts came from Hollywood as well, as the Motion Picture Association of America (MPAA) wrote a letter to the CFTC saying the contracts were based on a “faulty understanding of the film business and could potentially damage the industry and economic interests of its workers.”

MDEX wrote a letter to the Senate asking for the removal of the proposal to ban box office futures from the bill, calling it “a contradiction to the current initiative for market transparency.”

Robert Swagger, CEO of MDEX, says, “The MPAA used their power to try to manipulate Congressional leaders with false information. If you look at the larger economic reform right now, [calling for] transparency and centrally-cleared exchanges, our exchange is the embodiment of that. Financing [in Hollywood] is drying up and this is the ideal time to have a futures market because it’ll bring more capital back in and allow the banks back in because it’ll allow them to hedge their risk.”

Analysts are split on whether movie contracts will take off. “It’s hard to take this seriously,” says Paul Zubulake, senior analyst at Aite Group. “It’s a waste of the regulatory body’s time. I see no potential for any viable market. It will die away due to lack of interest.”

MDEX plans to trade opening weekend motion picture revenue contracts in the form of binary options and collared futures, pending CFTC approval. Cantor has requested approval for domestic box office receipts contracts and also intends to list non-media related futures contracts. The CFTC’s review period for MDEX contracts ends June 7, and the review period for Cantor contracts ended May 14, with a possible extension to June 28.

“There’s no logical, legal reason why we shouldn’t be approved. If not, it’ll be [because of] pure politics on the part of special interest groups,” Swagger says.

However, those interest group are the targeted end users of the product and with so much on the regulatory plate of Congress and the CFTC, movie futures may not be a priority.

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