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

Movie futures blow up

imageThe ban on trading of movie futures included in the regulatory reform bill could encourage efforts by legislators to ban the trading of other market sectors in the future.

The CFTC approved Cantor Exchange’s futures contract based on box office receipts on June 28, a few days after the reconciled version of the House and Senate’s financial reform bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act, included a ban on the contracts. Cantor is not expected to fight efforts to ban the contracts and will instead focus on foreign currency products. However, Media Derivatives, Inc./Trend Exchange had also planned to offer the contracts, and “its plans remain unchanged,” according to a spokesperson, who had no further comment.

“They’re putting a lot of responsibility on the regulators in the overall bill, so why do movie futures need to be banned separately?” asks Paul Zubulake, senior analyst at Aite Group. However, he adds, “The amount of interest in [these contracts] is minimal at best. I can’t imagine that would be a viable market.”

Paul Rowady, senior analyst at Tabb Group, says, “From a broad lens perspective, [the ban] is disturbing, because having more tools to hedge more specific factors is a good thing. From a short-term perspective, [movie futures] smell too much like gambling.”

Several decades ago, a similar ban on trading a specific commodity occurred in the case of futures on onions, which are also banned in the current bill. Onion futures haven’t been traded since 1958 upon protest by farmers after prices collapsed. Some argue that the ban actually contributes to price volatility in the onion markets. In the case of movie futures, the Motion Picture Association of America lobbied the CFTC and Congress not to approve them.

Zubulake doesn’t think this legislation will lead to a trend. “I don’t see the model changing for approving new contracts,” he says.

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