Why the CFTC wont approve the Cantor Exchange and the Trend Exchanges prediction markets on movie box office

Product approval (see below) is a different question from exchange approval (blogged previously by Mike Giberson).


CFTC Commissioner Bart Chilton called it a a€?popcorn prediction market,a€? […]

Hollywood studios that participate by hedging their filmsa€™ prospects will doom ticket sales, said Peter Guber, chairman and CEO of independent production company Mandalay Pictures LLC.

a€?The word will get out in three seconds and the picture will be a complete catastrophe,a€? said Guber, who was chairman and CEO of Sony Pictures Entertainment in the early 1990s. […]

a€?We have serious concerns regarding the trading of media contracts and we support a very thorough review of all of these first-of-a-kind products,a€? CFTC Commissioner Scott Oa€™Malia said in an e-mailed statement.

U.S. Senator Blanche Lincoln, an Arkansas Democrat, today added language banning trade in movie futures to a broader derivatives bill she is writing. Lincoln is chairman of the Agriculture Committee that oversees the commodity commission. […]

Activity on the exchanges would bring about a€?risky and manipulativea€? behavior, said Patrick Leahy, the Vermont Democrat who heads the Senate Judiciary Committee, and Senator Orrin Hatch, a Utah Republican.

a€?Ia€™m worried about manipulation,a€? Chilton said in an interview on Bloomberg Television before the vote.

6 thoughts on “Why the CFTC wont approve the Cantor Exchange and the Trend Exchanges prediction markets on movie box office

  1. Max Keiser said:

    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;
    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.

  2. Jason Ruspini said:

    Has anyone seen the exact text of the Lincoln bill that pertains to Cantor? I can only find older versions.

    A requirement that participating studios regularly publish ad budgets and estimates of opening screen counts would address some of the design issues. Those numbers would be a proxy for inside information and would also make outcome manipulation more difficult. At least, this would be the case if studios were disallowed from buying and then upping a metric within one reporting cycle. Of course then the studios might not want to participate, and other issues remain, and the CFTC seems quite aware of them.

    I told you, Chris, the outrage over the financial crisis would broadly undercut “prediction markets”…

  3. Chris F. Masse said:

    “the outrage over the financial crisis would broadly undercut prediction marketsa€¦”

    Isn’t CantorExchange/TrendExchange a special case?

  4. Jason Ruspini said:

    In the sense that studios have a lot of inside information and control over relatively subjective outcomes, yes, but there is a general backlash against finance and the “casino economy”, generally anything that is perceived to make money by shifting money around, as opposed to the “real” productive economy. I come across that idea at least once a day now it seems. Anyone who is trying to introduce markets to a new area is advised to keep things under wraps for as long as possible, lest a prohibition against their idea will suddenly appear in a bill.

    Even enterprise PMs have moved away from the market metaphor.

  5. Jason Ruspini said:

    I was talking more about the Lincoln bill. Chilton’s language was balanced, but notice that he did throw in “merely a gambling venue” as a conclusion.

    Also notice that, aside from issues of self-fulfilling prophesies, there is little essential difference here from sports revenue futures. I mean, a team can go long their ticket sales one day and sign a big star the next day. If you make the revenue market conditional on spending, that begins to address the design problem, but it’s still infeasible in this context. The basic problem is that hedging can’t be allowed for outcomes that hedgers have significant influence over. I have been supportive of the Cantor project, but I was never sure how these contracts would be approved:


    “Many potential markets may improve decision-making for a particular business, but have little bearing on the broader economy and asset prices in general. Examples of these markets include those predicting: (1) the revenue of a particular product, published title, film or performance series, (2) the launch or completion date of a particular product or project, and (3) the success of a particular approach applied to a certain problem. The CFTC may find that only broad-based events or measures affecting an entire population, industry or significant percentage thereof would satisfy the economic consequence criteria. This would be nothing new, as commodity derivatives were not intended to be specialized insurance contracts. Such narrow questions also present issues from a manipulation and insider-trading perspective. In aggregate, these sorts of questions are quite relevant to the economy and will at times reflect broad trends, but may be more appropriately served by over-the-counter arrangements […]”

    So prospects appear grim for such contracts, and doubly grim given the last bit about OTC “arrangements”.

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