CFTC Takes Jurisdiction Over Prediction Markets.

First, a hearty congratulations to Robert Swagger and Trend Exchange. Along with the Cantor Exchange folks, they have run quite a gauntlet, and although there remains a tremendous obstacle in the form of the Lincoln amendment, I consider these exchanges to have already accomplished a great deal.

In its approval of Trend Exchange and preceding statements, the CFTC has confirmed a very broad definition of “-commodity”- that includes “-event”- contracts. The old debate about whether or not the CFTC has jurisdiction over “-prediction markets”- has been decided for now. Yet, there is considerable dissent within the Commission. Commissioners Chilton and Sommers have expressed disapproval that the Commission did not first address the general questions raised in the 2008 Concept Release. To this point, given the very broad definition of “-commodity,”- it now seems that Intrade and online sports exchanges could be in violation of the Commodity Exchange Act. The Commission does not consider an “-economic purpose test”- in the contract review process, and there is no statutory basis for such a test being used in jurisdictional determinations. Perhaps as a matter of practice, in accordance with the spirit of the Act, the Commission is considering such a test for jurisdicitional questions as I suggested in my Concept Release comments (surprisingly cited by the MPAA group). Otherwise, it seems inconsistent that exchange-traded sports bets, for example, would not also be considered commodities and be subject to the Act.

As a whole, the Commission has apparently decided to defer such questions and focus on specific techniques for ensuring that the new contracts fulfill the Act from the standpoints of manipulation and fair trading. To these ends, the CFTC will require, “-entities and individuals who control a film’s marketing budget, release date or opening screen number to provide the Exchange with information regarding such decisions whenever that entity or individual holds a position of 1,000 or more contracts.”- Additionally, the Commission will require a “-firewall”- within studios and distributors, and has restricted certain employees from trading altogether. These are procedures that I had recommended for event contracts, but they are relatively novel mechanisms in the commodities world. Whether or not the CFTC would agree to support special trading restrictions was the pivotal question in whether the contracts would be approved. I applaud the principled, politically independent thinking of the Commission and the can-do attitude of the Market Oversight Division —- though some headline risk has been assumed here if something should eventually fall through the cracks.

BREAKING: The CFTC approves MDEXs real-money prediction markets on movie box office.

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“-In a 3-2 vote, the Commodity Futures Trading Commission on Monday afternoon approved a contract created by the company Media Derivatives that would allow traders to bet on the gross receipts that a movie pulls in during its opening weekend.”-

UPDATE:

- NYT

- WSJ

- Felix Salmon

- “-If we approve these types of things on the arguments posed in favor of them, we could be approving things like death pools or terrorism contracts, something Congress surely never intended.”-

- Hollywood Reporter

- AP

- CNBC

- AFP

CFTC: 3-2 in favor of approval of movie contracts -SO FAR.

What was said at the CFTC hearing on movie futures.

Hollywood Reporter.

Business Week. More.

CFTC.

Hollywood clashed with Wall Street on Wednesday at a government hearing about the potential sale of futures contracts linked to box office receipts of major motion pictures.

“-financial engineering synthetic derivatives”-

More.

The CFTC plans to hold a public hearing next week to examine the growing controversy surrounding a plan by two firms to offer futures contracts tied to box-office receipts.

The CFTC plans to hold a public hearing next week to examine the growing controversy surrounding a plan by two firms to offer futures contracts tied to box-office receipts.

Every investment in film is gambling.

A Case for Movie Futures –- by Buzz Potamkin, former studio executive and producer, in the biz for 40+ years, now a consultant

Felix Salmons hastily written NYT Op-Ed about the Cantor Exchange and MDEX

You will learn nothing.

Watch the US House video instead. You will have more facts and more arguments.

UPDATE: Mike Giberson has a remark on Felix’-s piece.

What the Cantor Exchange (HSX) and the Media Derivatives Exchange (MDEX) really said to the US Congress about movie futures (a.k.a. box-office derivatives) – [VIDEO]

House Committee Agriculture @ US House Of Representatives:

Download this post to watch the video if your feed reader does not show it to you.

–-> Prof Schuyler Moore mentions InTrade 1:35 into.

Via Paul Bleier on FaceBook.

Previously.

Cantor Exchange and Trend Exchange defend the usefulness of movie hedging.

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Lions Gate vice chairman Michael Burns said the marketswould allow a diverse group of motion picture industry participants, including studios, film distributors, theater owners, investors and other financial intermediaries within the motion picture industry to manage their risk and exposure to new film releases.”-

“We believe a market in domestic box office receipts would substantially widen the number and breadth of financing sources available to the motion picture industry by lowering the risk inherent in such financing,” Burns wrote.

Robin Hanson is in favor of movie business futures.

ADDENDUM:

- “-Geithner also rejected the ban on creating a movie futures market, saying you don’-t want ‘-Washington bureaucrats’- stifling innovation.”-

- Jason Ruspini sends us the link of the Senate bill.

CFTC Commissioner Bart Chilton on the Trend Exchange and the Cantor Exchanges movie box-office prediction markets

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CFTC Commissioner Bart Chilton on the movie box-office futures:

Via Max Keiser…- who has this to say:

I’m glad Chilton brought this up.

When I was CEO of HSX – I shared a board seat with members who were also on the board of Lionsgate Films.

Lionsgate was constantly moving the prices of their films (or films they had an interest in, or a friend’s film) on HSX as a way to manipulate perception and marketing dollar spends.

This conflict blew up in the now famous Access Hollywood incident-
http://www.villagevoice.com/1999-11-16/news/access-denied/
I was stopped from reporting the real numbers on HSX on Access Hollywood and prices from that moment forward were controlled by people who whose interests lay with the studios.

I went to war with the rest of the board to defend my creation, and my technology, and all the IP that is HSX/Cantorx – board members included Citibank and NBC who sided with the studios – in allowing the prices on HSX to be moved per ‘marketing’ requests made by the studios. This lead to a blowout on the board and my leaving HSX as a result.

Shortly thereafter, the same dissident board members engineered the deal with Cantor for HSX – that has yet to be consummated. None of the investors who put $40 mn. into HSX have ever seen a penny from Cantor. There is no paper trail that links Cantor to HSX. Cantor claims everything was lost on 9/11.

Now – they hope to take the studio/wall st. collusion to the next level via Cantor Exchange. Bart Chilton is right to be suspicious of this. Will they really due their due diligence? Doubtful. This is Wall St. we’re talking about.

Personally, I put 95% of my wealth in gold bullion 8 years ago – so to be clear – another blowup of another exchange will only drive the price of gold higher – so I am half-wanting to see this catastrophe unfold.

Previously: Why the CFTC won’t approve the Cantor Exchange and the Trend Exchange’s prediction markets on movie box office