A day after the second movie-futures trading exchange received federal approval, the whole financial endeavor hit a major roadblock.
Legislation banning Wall Street trading of movie box-office futures has been sent to the Senate floor, as part of the Wall Street Transparency and Accounting Act.
The bill will be subject to Senate debate starting Thursday and could be voted on in the next few weeks.
The whole issue of futures trading tied to domestic box-office performance, which became publicly visible only in the last few months, was expected to sail smoothly to approval. In fact, trading was supposed to have already begun.
But it’s now close to being derailed by opposition from Congress and Hollywood.
On Wednesday morning, the Senate Agriculture Committee — without even talking at all about the movie issue — on a 13-to-8 vote sent legislation to the Senate floor banning the Commodities Futures Trading Commission from approving film-futures trading.
The ban is only a small component of a much broader reforms package attempting to put tighter restrictions and apply greater transparency to the kinds of exotic derivatives products that led to the near-collapse of Wall Street 18 months ago.
The Senate is due to begin consideration of a different package of Wall Street reforms offered by Banking Committee Chairman Chris Dodd, D-Conn., as soon as tomorrow.
Agriculture Committee chairman Blanche Lincoln, D-Ark. — who introduced the movie-trading ban into the legislationa last week — said Wednesday that she expects the two measures to be merged. Jim Manley, an aide to Senate Majority Leader Harry Reid, D-Nev., said no final decision has yet been made.
On Thursday, both futures-trading companies, Cantor Fitzgerald and Media Derivatives, will have their chance to present their case to Congress, albeit to a subcommittee of the House Agriculture Committee.
Officials for the Motion Picture Association of America, which has led a powerful Hollywood opposition lobby, will also be on hand.
Although both Cantor Fitzgerald and Media Derivatives filed their respective approval requests with the CFTC a year ago, the MPAA-led coalition only recently chimed in with a host of concerns about such trading. The basic anxiety: movies are not a commidity like oil or wheat, and trading futures on them will only lead to all sorts of abuses.
“We thank chairman Lincoln and the committee for seeking to put an end to plans that would allow wagering on box-office futures," read a statement released by MPAA president and interim CEO Bob Pisano Wednesday. "We believe these plans are based on a faulty understanding of the film business and could cause real financial harm to both the film industry and other Americans drawn in by an online gaming platform that could be easily manipulated."
Whether the broader financial reform package survives the gauntlet of both the House and Senate — and a ban on movie futures trading is still part of it when it does — is, of course, hard to predict.
For his part, however, Cantor Exchange president Richard Jaycobs believes Thursday’s House meeting will give his company an opportunity to rebut a steady stream of public opposition that has surfaced in the last few weeks.
Both Cantor and Media Derivatives argue that their markets will provide useful tools for movie funders to offset risk and will thus help stabilize the motion-picture finance market as a result.
"We haven’t had a venue really to address the MPAA’s issues head on," Jaycobs told TheWrap. "It’s hard to do that in a two-hour congressional hearing, but it’s a step in the process."
Despite Wednesday’s vote, Commodities Future Trading Commission chairman Gary Gensler told TheWrap that the body would move forward in regard to considering requests to trade movie futures from Cantor Fitzgerald and from Media Derivatives.
While the CFTC has approved requests by the two companies to establish trading exchanges, approvals also must still be rendered for the financial products (called "contracts") that will trade on these markets.
“We are going to continue to comply with the Commodities Future Exchange Act as it is now in place,” he said. “In the last week there were two entities that put forward exchanges or as we call it designated contract markets. In each case our commission found the statutory criteria. We have yet to consider or address ourselves specifically to the contracts themselves. The first one we have to do by June 7 in the normal course of what we do.”
He noted that the likelihood of a Senate vote doesn’t change the current law.
“We comply with the law and the law of the land is this is what we do. This provision is just in a committee print,” he said.
Added Jaycobs: "I’m very confident that our contract meets the current requirements as they now stand. For us, it’s now a matter of showing how the movie industry will benefit from having this exchange. But obviously, Congress can change the laws, and if they outlaw something, that’s going to impact us."