Congress includes ban on boxoffice trading

Trend Exchange threatens lawsuit to overturn ban

Congress has driven a stake through the heart of movie boxoffice futures trading.

An amendment banning the trading of derivatives based on boxoffice results was approved just before 1 a.m. EST on Friday morning by a House-Senate conference committee for inclusion in the Wall Street reform bill (the Restoring American Financial Stability Act). It came after an entire day and night of discussion on the complex legislation.

Committee chair Rep. Barney Frank (D-Mass.) said during a short discussion that while there had been controversy about movie futures, the House conferees were not going to exercise their option to alter the amendment banning movie futures trading. He said they were agreeing to the amendment as written by Sen. Blanche Lincoln (D-Ark.) for the Senate bill. “By not addressing it, we have acquiesced in that,” said Frank.  

Both chambers of Congress will almost certainly pass the conference committee's version of the bill with strong support from Democrats prior to summer recess on July 2. President Obama has indicated he will sign it into law.

The amendment was strongly supported
by the MPAA, representing major studios, as well as Hollywood talent guilds, major movie exhibitors and others, who lobbied for it.

It has been vigorously opposed by Veriana, an Arizona company that operates Media Derivatives, which wants to launch the Trend Exchange (MDEX); as well as Cantor Fitzgerald, owner of the Hollywood Stock Exchange, which wants to market a similar product through the Cantor Exchange; and some others, including Michael Burns, vice chairman of Lionsgate.   

Derivatives are contracts whose value is based on stocks, bonds, loans, currencies or commodities linked to a specific event such as changes in weather, or in this instance, boxoffice results.

Media Derivatives had won approval from the Commodities Futures Trading Commission on June 15 to offer its first contracts to investors. The new law would appear to cancel that plan, although Veriana/Trend Exchange CEO Robert Swagger said earlier this week they will likely file a legal challenge based on their view that they are victims of antitrust activity by the MPAA and its allies. Swagger has also said Trend Exchange should be "grandfathered in" and allowed to offer their product since they won their approval before the new law's approval. That is likely to be opposed by the same groups that have fought this entire idea and will probably be decided ultimately in a court of law.

Veriana has spent $10 million, and Cantor millions more, developing a futures market they argued would increase investment in movies and provide a hedge to those who finance films, just as markets in such things as orange juice, precious metals and pork bellies allow businesses to lay off financial risk.

The Trend Exchange products were aimed at large and institutional investors, with a minimum investment of $5,000, and would be in play from a month before a movie opens until its premiere. The Cantor products were to be aimed at both large and small investors and would have run from before opening until one month after the movie hits theaters. The CFTC had a deadline of June 28 to approve or disapprove the first Cantor contracts.

The MPAA, led by interim CEO Bob Pisano, has said that a futures market could encourage rival studios or speculators to bet against a movie's success. They said they were subject to market manipulation and might encourage spreading of negative information. They said major movie companies don't want and won't use this hedge, which they consider nothing but a form of gambling. They insist it would create intolerable pressures on movie companies, drive down the value of a movie and dissuade moviegoers from buying tickets.