Leahy, Hatch: Box-Office Exchange Risky
Senate Judiciary Chairman Patrick Leahy and panel member Sen. Orrin Hatch, R-Utah, have asked the Commodity Futures Trading Commission to raise concern over the proposed establishment of an exchange for financial instruments tied to box-office outcomes. In a letter Thursday, the two said the "unprecedented" prospect of trades based on successes and failures in the movie business could create perverse incentives that might "undermine the integrity of the industry."
Their entreaty follows separate applications by Cantor Futures Exchange and Media Derivatives to be designated as contract markets by the CFTC. The Motion Picture Association of American and a handful of other industry groups have spoken out forcefully against the requests. "Rather than providing a real and useful means for hedging risk or price discovery, these instruments will be harmful and burdensome to the motion picture," the groups said in a separate letter to the agency.
Leahy and Hatch referenced the recent financial crisis as a reason why the CFTC should proceed with caution, noting efforts to "manipulate our financial markets" contributed to the downturn. They also said employees with insider information might be tempted to use it to their benefit. "Movie futures contracts appear to constitute a platform for betting that is even more risky and manipulative than the typical financial product," the senators wrote.
The issue heated up earlier this year when Cantor Future Exchange's outreach efforts around the possible exchange caught the attention of industry stakeholders, who argue that no trading regime like this one has ever existed before. The CFTC is expected to announce today whether Media Derivatives will be designated as a contract market, while the decision on Cantor is expected later this month.
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