The H’wood Stock Exchange, With Real Bucks

Cantor Fitzgerald set to launch online box-office futures trading service

Last Updated: February 24, 2010 @ 12:10 PM

Global financial services firm Cantor Fitzgerald is set to launch a real-money-driven futures trading market based on its popular Hollywood Stock Exchange multiplayer online game.

Domestic Box Office Receipt Movie Futures (DBOR for short) will offer both movie enthusiasts and serious, money-minded traders a 24-hour online market in which they will seek to predict the North American performance of movies after their first four weeks in theaters.

Acquired by Cantor Fitzgerald in 2001, the Hollywood Stock Exchange currently touts 1.7 million users, about 200,000 of whom use the site actively.

According to Cantor Entertainment president-CEO Andy Wing, the HSX user base has vocally sought to play with real money for several years now. However, Cantor sees a broader, more serious-minded user base for the DBOR, including everyone from film financiers to exhibitors to institutional investors.

For example, investors who hold shares in an exhibitor might feel their chain doesn’t have enough theaters playing the next “Harry Potter” movie, so optimistically trading in the DBOR Movie Futures market might allow them to participate in an upside that would otherwise be unavailable.

Meanwhile, a film financier who feels overextended on a certain project might use the market to hedge against the film’s underperformance.

“I do think there are some more sophisticated uses of the exchange, beyond the mere movie enthusiasts,” Wing said.

As with any U.S. futures market, there are no underlying "direct" securities that investors actually possess; the value is entirely divorced from any tangible assets, making it essentially a sophisticated form of gambling on the performance of a commodity.

Offering up a little futures trading 101 to TheWrap, Wing explained the trading system this way: An institutional investor might predict the four-week domestic gross for Paramount’s just-released “Shutter Island” at $75 million, and establish a contract accordingly. (All contracts are priced at 1/1,000,000th of the anticipated gross, so the value would be $75.)

Predicting the film’s delay might impact its gross, a Viacom stockholder might hedge his investment in the conglomerate by predicting the performance at $65 million and buying that contract.

Let’s say the Viacom investor is closer to being right: The film grosses just $60 million after four weeks in North American theaters. He’d not only get his $75 back, he’d get an additional $10 that would reflect the difference between his prediction and that of the institutional investor.

If the film ended up grossing $85 million, the guy who established the contract would net $10, reflecting the fact that the performance was $10 million better than his prediction.

“We believe that in just a couple of years, this will be a billion-dollar-plus market,” Wing said.

The company’s Cantor Exchange division expects to receive final approval of the exchange’s market and clearinghouse applications from the Commodity Futures Trading Commission by April 20.