April 21 (Bloomberg) -- Cantor Fitzgerald LP gained U.S. approval for a box-office futures market, the second trading proposal cleared amid objections from Hollywood movie studios that said the exchanges may lead to manipulation.
The Commodity Futures Trading Commission voted 5-0 yesterday in favor of a market that Cantor described as a way for the movie industry “to create liquidity and hedge their daily business activities.” Cantor must win separate approval for the contracts before trading starts, the agency said.
A Veriana Networks Inc. unit on April 16 received agency approval to let traders bet on a film’s opening weekend ticket sales, without gaining support for specific contracts. Cantor, the New York-based bond trader, said its market would let retail investors bet on receipts through a film’s fourth weekend of release.
“I continue to have serious concerns” about trading in media contracts, Republican Commissioner Scott O’Malia said in an e-mailed statement yesterday. “I support a very thorough review of all of these first-of-a-kind products to ensure they will provide a useful commercial hedging tool and are free from fraud and manipulation.”
The commodity commission, which regulates the trading of futures and other derivative contracts, must approve exchanges that meet criteria laid down in its rules, the agency said in its e-mailed statement yesterday announcing the decision.
Congress is considering steps to restrict box-office bets. A Senate bill to ban trades in movie futures cleared a committee today, and a House hearing will focus on the issue tomorrow. Three of five CFTC commissioners in statements on the Veriana proposal said they would scrutinize proposed contract types.
“As they say in Hollywood, these contracts may -- or may not -- be ‘coming soon to a theater near you,’” Commissioner Bart Chilton, a Democrat, said in a statement.
If contracts aren’t useful as a hedging tool and are susceptible to manipulation, “then it is our opinion that approval is not permitted,” O’Malia and Commissioner Jill Sommers, a Republican, said in an April 16 joint statement.
Cantor proposes to trade products that “do not constitute legitimate futures contracts, but are in essence wagers that are susceptible to manipulation,” the Washington-based Motion Picture Association of America, representing studios, and the National Association of Theatre Owners said in a letter sent on the day of the Veriana decision.
A group of film producers, distributors and theater owners “remains united in our opposition to a risky online-wagering service that would be detrimental to the motion-picture industry,” the MPAA said yesterday in an e-mailed statement.
The market would be “a new way for movie industry professionals to address the financial challenges of the film business and for investors to participate in the opportunities of box office performance,” Cantor said in a Web posting.
The exchange will have protections against manipulation, Cantor Exchange President Rich Jaycobs said in an interview. He disagreed with the film industry that trading box-office contracts would impair a studios’ ability to sell a movie.
In this respect, motion pictures are no different than corn or other commodities with futures contracts, Jaycobs said.
“Farmers historically have marched on Chicago when they thought the Chicago Board of Trade prices were too low,” Jaycobs said. “That’s what the market does. It tells you what the product is worth.”
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