Trading of box-office futures OK'd by regulators
Federal regulators Monday allowed a new online exchange to proceed to trade future box-office receipts for movies.
The Associated Press
WASHINGTON — Federal regulators Monday allowed a new online exchange to proceed to trade future box-office receipts for movies.
A divided Commodity Futures Trading Commission approved by the mandated deadline the proposed futures contracts for the new Trend Exchange. That means the movie futures trading can proceed. The vote was 3-2.
Major Hollywood studios strongly oppose the idea. They say rival studios could sabotage films by betting against them.
Two CFTC commissioners, Democrat Bart Chilton and Republican Jill Sommers, voted against approving the contracts for the Trend Exchange.
"Popcorn prediction markets would serve no national public interest" and don't meet the law's requirements on how commodities are defined, Chilton said in a statement.
Allowing future box-office receipts to be traded like crude oil or pork bellies would give people who finance movies a way to make money even when a film doesn't. It also could be used for speculation.
Trading would be based on the amount of money a movie takes in during its opening weekend. The exchange would set the initial odds for contracts, but those odds would change based on bidding of investors. An investor who buys a contract with longer odds takes on greater risk and the potential to earn more money.
For example, an investor thinks a movie will make at least $75 million in its first weekend. The exchange finds an investor who thinks the movie will fall short of that mark and the two investors enter the contract together.
When the movie receipts come in, the one who is correct gets a percentage on top of his investment based on the odds received. The other loses his investment.
The CFTC previously approved the establishment of the Trend Exchange and the Cantor Futures Exchange. The proposed futures contracts, establishing rules for trading, have now gained the agency's approval for the Trend Exchange. For the Cantor exchange, the deadline for approving the contracts is June 28.
Supporters, led by investor groups that put up the money to make films, say the concept would help generate new capital for the movie industry. A tougher economy has made it harder to finance films and trading futures on box-office receipts would help offset risk.
In Congress, the Senate version of the financial regulatory overhaul would ban futures trading on movie revenues. It's unclear if that ban will survive House-Senate negotiations on the final legislation.
The first proposed contract for the Trend Exchange is for the Aug. 20 release of "Takers" featuring Matt Dillon.
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