Here is the Motion Picture Association of America (MPAA) letter, dated March 23, 2010, objecting to movie box office futures contracts from Cantor Exchange and Trend Exchange (TrendEx), which are currently pending approval by the Commodity Futures Trading Commission (CFTC), and the reply letter from Cantor Exchange, dated March 29, 2010:
MPAA Letter to CFTC re Cantor Exchange/Trend Exchange, dated 3.26.2010
Cantor Exchange Reply Letter to MPAA, dated 3.29.2010
Summaries of both letters below.
Also visit Box Office Futures Page for news-info-links.
Summary Of MPAA Letter
The crux of the MPAA letter is (i) box office futures are inherently vulnerable to price manipulation, (ii) parties with inside information will find it difficult to comply with the law when trading such contracts, and (iii) the contracts do not serve Congressionally-defined public interests in futures trading which are (a) hedging and (b) price basing.
As for hedging, MPAA states movie studios will be unable to hedge financial risk in a particular movie because the DBOR contract will prevent them from doing so since they possess material non-public information (i.e. insider info). But the Cantor Exchange states otherwise in its reply letter because studios can use ”information barriers”. [See Summary of Cantor Exchange Letter, below.]
As for price basing, MPAA states it is unaware of any commercial transactions today that base their price on weekly box office. But Media Derivative (Trend Exchange/TrendEx) also responded to the MPAA Letter and addressed price basing, among other things. Media Derivative’s 3.26.10 Response To MPAA Letter “disagrees that the primary purpose of exchange traded products is to provide pricing basis for commercial transactions.” Rather it states that the “financial purpose of a futures market for a hedger is for risk transference.” In addition, Media Derivative’s 3.26.10 Letter Responding To MPAA Comment Letter (a separate document filed with the CFTC), identifies commercial transactions that base their price on box office revenues, namely “. . . Hollywood Stock Exchange and the foreign, unregulated market of Intrade which offers a plethora of so-called ‘contracts-for-differences’ based upon box office revenues . . .”
Summary Of Cantor Exchange Reply To MPAA Letter
Cantor Exchange replies that the MPAA letter is not timely because it was filed more than one year after the deadline set by the CFTC for comments (and studios have had knowledge of the application for more than a year and had discussions with Cantor Exchange regarding such). Cantor Exchange also states that the MPAA letter is factually incorrect for the following reasons:
1. Studios can hedge their financial risk even if some of their employees have material non-public info about a film by putting in place “information barriers between those hedging company positions and those that have access to material non-public information.” Methods of doing so include physical separation, separation of management and reporting lines, etc.
2. Movie theater owners also hold a financial interest in box office receipts and blocking futures contracts would deny them “access to a transparent and viable financial risk management marketplace.”
