WASHINGTON — Federal regulators have given the greenlight to another exchange that will trade in film futures, but as in last week’s action on a similar proposal, they have yet to decide whether to OK the actual contracts tied to box office receipts.
Tuesday’s decision by the Commodity Futures Trading Commission to approve the Cantor Exchange was not a surprise, as it mirrors its approval of the Trend Exchange on Friday. Given the novel nature of the contracts, Cantor must submit all new classes or categories of media-related contracts to the commission for approval, rather than having the ability to certify them on its own. The commission also approved Cantor Clearinghouse’s application to be registered as a derivative clearing organization.
As recently as the beginning of last month, it looked like the Cantor Exchange and the Trend Exchange were headed to the market. But a number of industry groups, led by the Motion Picture Assn. of America, raised objections, arguing that such exchanges will be subject to price manipulation and conflict of interest that will be difficult to control given the unique nature of the film business.
The proposals will be the subject of a hearing before a House Agriculture subcommittee on Thursday, where industry groups like the MPAA are expected to reiterate their opposition.
Richard Jaycobs, the president of the Cantor Exchange, which is a subsidiary of Cantor Fitzgerald, said in a statement that they “appreciate the excellent work” of the commission and “look forward to continuing to work with them as they oversee our exchange and review our domestic box office receipts contracts for approval.”
One of the major difference between the Cantor Exchange and the Trend Exchange box office proposals is that Cantor’s trading ends four weeks after a movie’s release and Trend ends trading just before opening weekend.
The commission contends that the Commodity Exchange Act required that it approve the Cantor application because it met the “criteria enumerated in the Act.”
But MPAA spokesman Howard Gantman said the commission had “ample discretion under the law” to reject the proposal.
“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,” Gantman said.
From a political standpoint, what the MPAA may have going for it is the heightened attention on financial regulatory reform, even as Cantor and Trend Exchange argue that, unlike Wall Street derivatives, their products will be part of a highly regulated marketplace in practice for centuries. Sen. Blanche Lincoln (D-Ark.) has proposed a ban on trading based on box office receipts as part of a financial overhaul bill she introduced last week.
As they did last week, some of the commissioners issued statements of concern about the film futures trading.
Commissioner Scott D. O’Malia said that he supports a thorough review of the exchanges “to ensure that they will provide a useful commercial hedging tool and are free from fraud and manipulation.” Another commissioner, Jill E. Sommers, called on the CFTC to address the “broad policy issues” raised by the exchanges.