Monday, June 28, 2010

Movie Futures Market Approved, But It's An Empty Victory

The CFTC has approved Cantor Exchange to trade futures based on film box office performance.  Earlier in the month, the CFTC had approved a similar program to be operated by Media Derivatives.  All of this would appear to be a big "green light" for the trading of film futures. But...

Unfortunately for Cantor and MD, the House of Representatives included a ban on these trades as a part of the economic bill passed last Friday.  This ban is likely to remain a part of that law when it comes out of Congress, and the President has indicated he will sign it.  So, this is a hollow and temporary victory for Cantor and MD.

It may very well be that Wayne Friedman of MediaPost is right when he says it's about access to information. (I made a similar point in a post back in April.) The culture of Hollywood is all about spin, and that means tight controls on what information leaks into the public.  The culture of securities is supposed to be about access to information.  Investors are supposed to have as much information as insiders in order to make their trading decisions.

There's a big cultural clash between those two positions -- control vs. access.  It is actually a common theme in the media and entertainment business. (And technology too -- look how crazy Apple went when the iPhone 4 leaked.)  Hollywood seems to have won this round.  Congress trumps the CFTC, so there is unlikely to be any trading based on box office numbers.  Too bad.  I still think it would have been fun.

Cantor says that it is still committed to providing tools for the entertainment business to use in connection with financial transactions.  I will be interested to see what they come up with next (and what the studios do in response).


Alexander Baker said...

"Insider Trading" is a thought crime. It simply means trading based on knowledge that you have, that is not known by the average person.

Any person who specializes in anything (even entertainment law!) trades on "inside" knowledge they possess. The reason I am willing to pay my plumber big money is not because he does anything I couldn't do physically. It is because he has special knowledge I don't.

It is impossible to measure what somebody knows. The laws against insider trading are simply another club your government uses to selectively bash the disfavored.

Roger Goff said...

I think you make an excellent point, Ace, but I don't completely agree. If I'm inside a company and I trade that company's stock knowing that something very good or very bad is about to happen, that's unfair. Using my knowledge of an industry to trade in the companies within that industry -- no problem.

I think there is a difference between specific knowledge and general knowledge. Anyone can gain general knowledge, but if you use specific information that impacts a particular company, that is cheating. It is knowing the next card that's going to be turned over.