We've Got Hollywood Covered

Cantor Fitzgerald Gets U.S. Approval on Movies Future Trading

2nd group to get trading commission’s OK — but the issue still faces big hurdles

The second of two financial companies looking to establish futures trading based on domestic box office performance of movies received regulatory approval Tuesday to set up a market.

The ruling from the Commodities Futures Trading Commission sanctions Cantor Fitzgerald to create the infrastructure for movie-futures trading.

Similar approval was given Friday to Chicago-based Media Derivatives.

Both companies still must gain approval for the actual financial products (aka "contracts") that will enable trading on these exchanges.

"Obviously, we were pleased we were able to work with the commission and get this done, but we now have a process of walking through the issues of the contract, and that should take several weeks," Cantor Exchange president Richard Jaycobson told TheWrap.

If all goes to Hoyle, Media Derivatives could have approval for its contract (acronym: MDEX) by June 7, with Cantor Fitzgerald’s approval for its DBOR falling at the end of June.

For its part, Cantor is set to begin trading as soon as that approval occurs — but that is far from a given at this point.

Both companies face staunch opposition from a powerful Hollywood lobby, which is led by the Motion Picture Association of America and backed by numerous members of the House and Senate.

Read an MPAA statement released Tuesday: “Our coalition of film industry workers, creators, independent producers and distributors, business organizations and theater owners, remains united in our opposition to a risky online-wagering service that would be detrimental to the motion picture industry and the 2.4 million Americans whose livelihoods are based on this industry. We believe that the CFTC had ample discretion under the law to reject this proposal by Cantor Futures Exchange L.P."

Last week, Blanche Lincoln, chairman of the Senate Agriculture Committee, revised her own Wall Street reform legislation to add a provision banning movie-futures trading. On Wednesday, the committee will convene to consider that decision.

Separately at 10:30 a.m. ET on Thursday, the House Agriculture Committee’s subcommittee on General Farm Commodities and Risk Management will hold a hearing on the whole issue of movie industry futures. The session will be on the web.

"We have not had a venue really to come and address the MPAA’s issues head on," Jaycobson said. "It’s hard to do that in a two-hour Congressional hearing, but it’s a step in the process."

Using almost identical language for the caveat it gave Media Derivatives, the CFTC warned Cantor Fitzgerald that any financial contracts ultimately approved for the just-OK’d exchange will be subject to tighter restrictions than, say, oil futures would.

"Given the novel nature of the contract that Cantor has proposed trading, the CFTC has requested, and Cantor has agreed, that rather than self-certifying such contract, Cantor will submit all new classes or categories of media-related contracts it intends to list for approval by the Commission," a CFTC statement read. "The commission has not approved the trading of any futures or options related to box office receipts at this time.”

Cantor Fitzgerald has spent four years and millions of dollars developing a market for both institututional investors and the general public to trade on projected box office for feature films four weeks after release date.

The Wall Street firm has billed its market as a useful tool for offsetting risk, allowing, say, producers to offset a heavy film investment by shorting the market.

Company officials argue that the ability of futures markets to offset risks has created stability for commodies markets like energy and crops.

Studio officials, meanwhile, argue that their product has little in common with such commodies, and that any market that trades on movies would be limited, datawise, to industry sources, and thus easy to game.

More to read:

New Opposition to Movie Futures Trading: Congress

Key Approval Appears Likely for Movie Futures Trading

Cantor Exchange ‘Practice Results’ Are In

H’wood: Don’t Just Delay Movie Futures — Reject It