Regulators pave way for 2nd exchange letting investors bet on future box-office receipts

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Regulators approve movie futures for 2nd exchange

WASHINGTON — Federal regulators on Monday paved the way for a second online exchange letting investors make bets on movies’ future box-office receipts, but the exchange said a congressional ban may force it to change its plans.

The Commodity Futures Trading Commission approved the proposed futures contracts for the new Cantor Futures Exchange. That allows the movie futures trading to proceed. The vote was 3-2. Two weeks ago, the agency also narrowly approved box-office futures contracts for the new Trend Exchange.

However, legislation banning trading of box-office futures is included in the sweeping overhaul of financial regulation now awaiting a final vote in Congress.

Major Hollywood studios, which promoted the ban, strongly oppose the idea of movie-futures trading. They say rival studios could sabotage films by betting against them. Opponents warn that the sort of complex trading that brought down the housing market could do the same to the movie industry.

But supporters, led by investor groups that put up the money to make films, say the trading 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, they say.

Richard Jaycobs, president of the Cantor Futures Exchange, said in a statement the CFTC’s approval “demonstrates that a broad range of participants in the film industry would benefit from the utility and value of those contracts.” However, he added, because of the proposed congressional ban on box-office futures, “Cantor is continuing to assess its options for providing risk management and financing tools to the motion picture industry.”

Robert Swagger, CEO of the Trend Exchange, said last week his exchange would consider pursuing legal action to block the ban from taking effect.

The financial overhaul package faced new obstacles Monday in the Senate, as the death of Sen. Robert Byrd, D-W.Va., and new misgivings by Republican senators who previously supported the legislation put the bill’s fate in doubt. Congressional leaders had wanted to send the bill to President Barack Obama by July 4, but the final vote may now be delayed.

As it did with the Trend Exchange proposal, the divided CFTC said it found that box-office receipts fit the law’s definition of a commodity, that the Cantor Futures Exchange contracts aren’t “readily susceptible” to manipulation, and they provide a way of managing risk.

And as happened with the first proposal, two of the five CFTC commissioners — Democrat Bart Chilton and Republican Jill Sommers — voted against approving the contracts for the Cantor exchange.

“If movie futures can be traded, we could also have terrorism contracts or death-pool contracts. None are good ideas,” Chilton said in a statement. He said the contracts “are subject to disruptive trading and manipulation because movie studios have a tremendous influence on box-office returns.”

The first contract for the Cantor Futures Exchange is for box-office receipts from “The Expendables,” being released Aug. 13. Sylvester Stallone directs and stars with Jet Li and Jason Statham in a tale of mercenaries betrayed on a mission.

Trading would be based on the amount of money a movie takes in during the first four weeks after it opens in theaters. Every $1 million in box-office receipts is equivalent to $1 in the value of a futures contract. For example, if an investor thinks a movie will make $100 million in the four weeks, he or she could buy a contract for $100. If the movie ends up pulling in $150 million, the investor makes a $50 profit per contract. Contracts also could be sold, or “shorted,” if the investor expects the movie to falter at the box office.

Trading on the Cantor exchange would be open directly to the public. That isn’t the case with the Trend Exchange, which is intended mainly for professional and institutional investors, and requires retail participants to trade through designated futures brokers. The Trend Exchange contracts are based on movies’ opening-weekend receipts. The first one is for “Takers,” coming on Aug. 20, with Matt Dillon as a cop who takes on a team of bank robbers.