On Friday, over the objections of Hollywood executives, the Commodity Futures Trading Commission (CFTC) approved Media Derivatives, Inc. (MDEX) for designation as a contract market. While this decision paves the way to the development of a film futures and options exchange, the CFTC has not yet approved any trading based on motion picture box office receipts.
Last month, MDEX announced its plans to launch The Trend Exchange— the first federally regulated film exchange to offer futures contracts based on opening weekend movie receipts. Although the approval of its application as a contract market is a positive development for the firm, it is not quite time to break open the champagne. The CFTC has stated that it is still considering MDEX’s request to trade film box office receipts. In a press release, the Commission qualified:
Given the novel nature of the contracts that MDEX has proposed trading, the CFTC has requested, and MDEX has agreed, that rather than self-certifying such contracts, MDEX must submit all new classes or categories of media-related contracts it lists for approval by the Commission. The Commission has not approved the trading of any futures or options related to box office receipts at this time.
Nevertheless, Trend Exchange Founder and CEO Robert Swagger seems hopeful. He enthused:
Like all Americans, we cherish the entertainment industry. We believe that our products, designed in partnership with the broad industry constituency, will help better manage economic uncertainty and financial volatility, thus enhancing opportunities for success.
Hollywood executives disagree. They believe that film futures and options trading may expose the studios to adverse speculation. Last month, the Motion Picture Association of America (MPAA) requested the CFTC to block the proposed trading of film futures contracts. In a letter to the agency, Interim MPAA CEO Robert Pisano, warned:
The reputation and integrity of our industry could be tarnished by allowing trading in the movie futures contracts in a manner which allows them to be viewed as the economic equivalent of legalized gambling on movie receipts.
Investment banking firm Cantor Fitzgerald wants a piece of the action. The Wall Street firm has recently announced its own plan to open a film stock exchange. Cantor Fitzgerald’s Hollywood Stock Exchange was founded on 1996 as an entertainment gaming site. The Los Angeles-based website invites visitors to use Hollywood Dollar® currency to buy and sell virtual shares of celebrities and movies. According to The New York Times, the company has recently begun allowing customers to fund their accounts with real dollars. The firm expects to get final CFTC approval for its exchange on Tuesday.
In good news for Hollywood, Senator Blanche Lincoln (D-AR) appears to be taking the side of the film establishment. On Friday, Lincoln--who as Chairwoman of the Senate Committee on Agriculture, Nutrition & Forestry has jurisdiction over futures markets--unveiled new financial reform legislation that contains language which favors the film industry. Among other items, her Wall Street Transparency and Accountability Act of 2010 amends the term “commodity” to specifically exclude motion picture box office receipt and related contracts.
Also in Washington, on Thursday the House Subcommittee on General Farm Commodities and Risk Management is scheduled to hold a public hearing “to review proposals to establish exchanges trading ‘movie futures.’” A number of major Hollywood players are expected to attend.
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