We've Got Hollywood Covered

House Adds Movie-Futures Trading Ban to Financial Reform

Language was in original Senate bill, but not in House version — courts may have to decide issue

Big movie studios won their fight early Friday morning to include a ban on movie box-office futures trading in the final version of financial reform legislation.

The move could end up leaving to the courts the question of the trading’s final fate.

A House-Senate Conference Committee decided to adopt language that was in the Senate’s version of the financial reform bill banning the Commodity Futures Trading Commission from approving futures contracts based on box office revenues.

The House’s version of the financial reform bill had no similar language

The House and Senate are expected to vote on the final package by next week, with President Obama expected to get and sign the legislation before the Fourth of July.

The CFTC already has approved Media Derivatives' plan to trade the futures, and on Monday is likely to approve a second plan to trade the futures, that one from Cantor Fitzgerald.

The Motion Picture Association of America has said the legislation will supersede the commission approval and prevent the trading of box office futures.

MPAA interim CEO Bob Pisano expressed pleasure at the congressional action.

“We are heartened by the Conference Committee’s actions and look forward to the full House and Senate approving the legislation,” Pisano said in a statement.

Media Derivatives chairman-CEO Robert S. Swagger has disagreed with that interpretation. He contends the legislation isn’t retroactive, and any trading already approved by the commission when the legislation becomes law is “grandfathered in.”

He insisted Media Derivatives intends to move forward with the trading, which will likely force a court challenge either by MPAA or a government agency.

The congressional vote culminates a battle inspired by concerns from MPAA and some Hollywood unions that futures trading would harm the movie industry.

They have contended that box office futures aren’t commodities and resemble gambling much more closely than futures trading, and that the underlying measure for box office revenues could be ripe for manipulation, for instance by changing advertising and number of screens on which films are shown.

They also have argued the futures would be ill-suited to hedge investments.

Media Derivatives and Cantor have responded that the futures would dramatically boost investments in movies by allowing investors to hedge possible losses. They have offered letters of support from investment advisers. Lionsgate has also supported the trading.

The CFTC, in approving the trading on a 3-to-2 vote, rejected the movie industry’s contentions that the numbers weren’t commodities, were subject to manipulation and couldn’t be used as hedges.