By KEVIN WALKER
Michigan Correspondent

WASHINGTON, D.C. — Last month a House agriculture subcommittee held a hearing on a proposal that would allow movie futures to be traded on an exchange like wheat or corn futures.
The House agriculture committee has jurisdiction over the Commodity Futures Trading Commission (CFTC), which would oversee any movie futures exchange just as it does other commodity exchanges.

The CFTC has already approved applications for two movie futures markets, one proposed by the company Media Derivatives, the other proposed by Cantor Futures Exchange, a subsidiary of the Wall Street company Cantor Fitzgerald.

The witnesses at the hearing, held April 22, included the General Counsel for the CFTC Dan Berkovitz, President of Cantor Futures Exchange Richard Jaycobs, Media Derivatives CEO Robert Swagger, Motion Picture Assoc. of America (MPAA) President Robert Pisano and Scott Harbinson, a representative of unions for theater employees and movie directors.

In his testimony, Berkovitz said that Media Derivatives (MDEX) has contracted with the National Futures Assoc. (NFA) to provide it with regulatory services and also has an agreement with the Minneapolis Grain Exchange to provide clearing services. He also stated more generally that any futures exchange must be monitored to prevent manipulation and excessive speculation.

“In addition to its reliance on NFA, MDEX will conduct its own real-time surveillance and some general market compliance,” Berkovitz said. “MDEX will be an intermediated market and will utilize an electronic trading system with web-based access or direct connections.”

At about the same time this hearing was held, the Senate agriculture committee passed a measure that would ban movie futures markets. The major movie studios are also against them. MPAA President Robert Pisano spoke against the idea of movie futures in his testimony before the committee. The MPAA, which imposes a ratings system on films amongst its other activities, represents the views of major movie studios.

“We strongly oppose approval of these proposed contracts because they are nothing more than gambling contracts that lack any of the characteristics of legitimate futures contracts, fail to serve any public interest and will harm all parts of the motion picture industry,” Pisano said.

President of Cantor Futures Exchange Richard Jaycobs said in his testimony that the goal of his company has always been to “assist the motion picture industry” by expanding the sources of financing for movies.

“Enlarging the potential sources of film financing will lower the cost of making a film, help create American jobs and contribute to stabilizing large and small members of the industry alike as they face the challenge of raising financing in the high risk endeavor of filmmaking,” Jaycobs said.

Scott Harbinson, the unions representative, saw only danger in the prospect of a futures exchange for movies. He stated that investors in such exchanges could short a particular movie and compound any problems a film might be having with box office receipts.
“The ability to trade on a film’s box office receipts through movie futures exchanges – exchanges where the creation of a negative perception of a film can be extremely lucrative for those shorting it, puts the commercial success of the film at an even greater risk,” Harbinson said.

The CFTC is continuing to hold its own meetings on the matter and it’s unclear at this point what will happen with any pending legislation.