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CFTC-regulated, real-money prediction markets about movie box office – Cantor Exchange

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Cantor Exchange

http://www.cantorexchange.com/ &#8212- A twin site of the Hollywood Stock Exchange.

Here are my early thoughts about the &#8220-Cantor Exchange&#8221-. I regret to say that their &#8220-Cantor Exchange&#8221- website does not seem very usable. (I hope it is not a bad omen.) It is impossible for me to copy their explanations posted on their webpages (other than the 2 press releases) and to republish that material in this post.

The second thought that comes to my mind is that their offerings are not standardized (their event derivatives are described in HSX lingo), and I wonder whether the real-money traders, who are accustomed to dealing with the CME, the NYSE, or InTrade, but who are not familiar with HSX, will make the effort to adapt. We will see. (I don&#8217-t think that the HSX play-money traders will go speculating on this real-money prediction exchange.) The collateral question is, why would the Cantor Exchange (a brand-new exchange with not a single trader, as of today) be better positioned to organize event derivative markets on movie business than, say, HedgeStreet, InTrade, BetFair, or even the CME? Obviously, Cantor Fitzgerald (a bond broker) are thinking that they can leverage their Wall Street clientele and the HSX population to branch out and start up a brand-new, CFTC-regulated, real-money prediction exchange. It&#8217-s quite a big bet. I say &#8220-branch out&#8221- because starting off a real-money prediction exchange (Cantor Exchange) is quite different than running a play-money prediction exchange (HSX). Just look at how difficult it has been for HedgeStreet, which started off in 2004, and escaped bankruptcy in 2007 thanks to their rescue by IG Index. After 4 years, HedgeStreet is still not profitable, and it will probably take more years before it turns the first profit. Let&#8217-s wish a better future for Cantor Exchange.

I will update this present post, later on, linking to the reactions from the media and the blogs. (Cantor will be holding a conf call this Tuesday, so some media coverage will pop up over the next days.)

Here is a Financial Times news article, which won&#8217-t tell you much more than the 2 press releases re-published below.

Here&#8217-s Variety.

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Press releases:

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CANTOR ENTERTAINMENT TO ANNOUNCE MOVIE BOX OFFICE CONTRACTS

TO MOTION PICTURE INDUSTRY AND INVESTOR COMMUNITY

Cantor Fitzgerald Files Application for Domestic Box Office Receipt Contracts

Los Angeles, CA- New York, NY – (December 8, 2008) – Cantor Entertainment, which provides various services to the entertainment industry and owns the Hollywood Stock Exchange, is pleased to announce that Domestic Box Office Receipt contracts will soon be available to the motion picture industry and investor community. Cantor Fitzgerald, its parent company, announced earlier today that it has filed an application to launch the Cantor Exchange, whose first listed product will be Domestic Box Office Receipt contracts.

Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance of wide-release Hollywood movies. Domestic Box Office Receipt contracts will be a next generation film-financing tool that allows market participants to hedge risk and provides them profit opportunities based on the first four weeks of a film’s box office revenues.

“It’s clear from our conversations within the industry and investment community that there is a tremendous opportunity to introduce this exciting new tool to complement existing film financing alternatives. The market for Domestic Box Office Receipt contracts offers the motion picture industry, investment funds, banks and all other prospective investors a federally regulated trading exchange dedicated to the entertainment industry,” said Andrew L. Wing, President and Chief Executive Officer of Cantor Entertainment. “Our involvement in Domestic Box Office Receipt contracts reflects our continuing commitment to expand Cantor Entertainment’s numerous services in the entertainment industry.” The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009. Cantor Exchange is subject to final approval by the Commodity Futures Trading Commission (“CFTC”).

About Cantor Entertainment
Cantor Entertainment, a division of Cantor Fitzgerald, L.P., provides services to the entertainment industry. Cantor Entertainment also owns the Hollywood Stock Exchange (www.HSX.com), the world’s leading virtual entertainment stock market.

About Cantor Fitzgerald, L.P.
Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.

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Cantor Fitzgerald Announces Application for Cantor Exchange

Domestic Box Office Receipt Contracts are Expected to be First Contract Market

A New Tool in Film Finance

NEW YORK&#8211-(BUSINESS WIRE)&#8211- Cantor Fitzgerald, L.P., a leading global financial services firm, announced today that it has filed an application with the Commodity Futures Trading Commission (“CFTC”) to launch the Cantor Exchange. Cantor Exchange intends to list Domestic Box Office Receipt contracts as the exchange’s first traded product.

“The Cantor Exchange and our intention to list Domestic Box Office Receipt contracts reflect our continuing commitment to innovation in the finance and entertainment sectors,” said Howard W. Lutnick, Chairman and Chief Executive Officer of Cantor Fitzgerald.

Subject to final regulatory approval of the Cantor Exchange application, Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance (ticket sales) of major film titles. Domestic Box Office Receipt contracts will be a next generation financial management tool that allows film professionals to hedge risk and provides speculative opportunities to other market participants based on the first four weeks of a film’s box office performance.

The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009, subject to final approval of the Cantor Exchange application by the CFTC.

About Cantor Exchange

Cantor Exchange is launching the first trading platform based on movie box office revenue, and expects to begin listing Domestic Box Office Receipt contracts in the first quarter of 2009, subject to final regulatory approval. Cantor Exchange is a division of Cantor Fitzgerald, L.P., one of the world’s leading financial services firms, and is partnered with Cantor Entertainment, another subsidiary of Cantor Fitzgerald, which provides services to the entertainment industry and owns the Hollywood Stock Exchange® (www.HSX.com), the world’s leading virtual entertainment stock market.

About Cantor Fitzgerald, L.P.

Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.

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UPDATES WILL BE POSTED BELOW, LATER TODAY (AND DURING THE NEXT DAYS)&#8230-

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[T]he initiative is not for an application for a product extension of HSX. Rather it is an application for the launching of a new futures market, the Cantor Exchange, which will list Domestic Box Office Receipt Contracts. The contracts will also be known as Movie Box Office Contracts.

There are some similarities with HSX in that Movie Box Office Contracts are modeled on the MovieStock methodology of our site. For example, the contracts will be based on four weeks of a film&#8217-s domestic box office revenue. The regulatory approval process is inherently uncertain, so it&#8217-s a bit premature to say we are moving into real-money film trading markets just yet, but that is our intent.

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That is from Alex Costakis, MD of HSX.

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Here&#8217-s the Cantor Exchange project leader: Richard Jaycobs.

He seems to be a man open to suggestions.

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CNBC on Cantor Exchange &#8212- Via Jason Ruspini

Fox Business on Cantor Exchange &#8211-

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Financial Times:

All eyes on Hollywood futures

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Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04

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Worlds #1 finance blogger withdraws all his money from InTrade… and blogs about it -detailing his negative customer experience to his thousands of Wall Street readers.

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Market Movers:

Dec 3 2008 5:52PM EST
The Problem With InTrade

I recently withdrew money from an InTrade account I&#8217-ve had for some years. The total cost of withdrawing the money was $53.10: A $20 fee to InTrade for &#8220-processing the bank wire&#8221-, a €10 ($13.10) wire-transfer fee to National Irish Bank, and a $20 fee to Bank of America, the intermediary bank via which the money arrived in my Citibank account. If Citi had charged their customary $25 incoming wire fee, the total would have been $78.10.

You need to have a very large balance at InTrade, or an incredibly successful trading strategy, to make trading there worthwhile if it costs the best part of $80 just to withdraw your money. And prediction markets need a critical mass of users, otherwise they die. InTrade, for one, can count me out.

[Felix Salmon]

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Posted: Dec 03 2008 6:24pm ET
I&#8217-ll definitely use the check option next time &#8212- but there&#8217-s no indication on their website as to which one is cheaper, and I stupidly thought that a wire transfer would be cheaper than printing and posting a check.
By Felix [Salmon]

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Posted: Dec 04 2008 04:46am ET
PayPal will not process transactions to online gambling sites (including Intrade) from the US. After the Unlawful Internet Gaming Enforcement Act none of the payment providers will process these transactions, that is why you are stuck with check and wire transfers.

I expect that Antiguan sports books offer free withdrawal because they have much higher margins than Intrade and therefore can absorb the costs elsewhere.
By nigeleccles [Nigel Eccles of HubDub]

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Previously: Why did John Delaney shut down TradeSports?

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Previously: The InTrade predicton markets on the viability of InTrade won&#8217-t reveal *ANYTHING* about the future of InTrade.

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Previously: on TradeSports death – on InTrade&#8217-s viability

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HubDub failed miserably in trying to predict the very unpredictable Mashable Open Web Awards.

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HubDub saw a big future for the Huffington Post (in the &#8220-Politics&#8221- category) and Digg (in the &#8220-Social News&#8221- category)&#8230- [*] &#8230- but, curiously, these big-shot websites didn&#8217-t make it through. That&#8217-s strange, since the other websites they were pitched against are far less popular. The Mashable readers have a knack for fresh startups, maybe &#8212-they didn&#8217-t vote for the already established websites.

Do browse the list of the remaining contenders (among them, HubDub :-D ). There are interesting websites, there.

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[*]

Huffington Post = 38%

Digg = 47%

These probabilities will crash down to zero in the coming hours/days, as these 2 websites are now eliminated from the competition, going further.

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Google vs. Prediction Markets – Which of the 2 will detect the flu, first?

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An Irish research team hopes to make accurate forecasts of key public health indicators.

University College Cork (UCC) School of Medicine + Intrade

Dr Dylan Evans:

Prediction markets are [specialized], small-scale financial markets operated to predict future events. The idea is that the collected knowledge of many people, each with a different perspective, will be more accurate than an individual or small group or even experts.

When they have been used to predict the outcomes of political elections, prediction markets have been found to be more accurate than alternative methods of forecasting.

The obvious area to look at in the first instance is infectious disease, but we plan to extend our research into many other areas of public health. At the moment, people do not get data on infectious disease until it&#8217-s a couple of weeks out of date and we need to get it quicker.

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Dylan Evans&#8217- website

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My opinion:

  • To assess the benefits (if any) of the prediction markets used as forecasting tools for public health, researchers will have to compare them with the experts&#8230- and with the &#8220-Google Flu Trends&#8221- web service, which is entirely free of charge and free of advertising (being sponsored by the Google Foundation). Does not sound good for the prediction markets.
  • The irony is that it&#8217-s our prediction market researchers (David Pennock and his accomplices) who gave weight to this non-market tool. &#8212- Pennock = Treator &#8230-!!&#8230- [ :-D – Joke. ]

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APPENDIX:

– Iowa Health Prediction Market

– Google Flu Trends

– See also: Google Foundation on &#8220-Predict and Prevent&#8221-.

– Google Trends

– David Pennock on the fact that flu-related searches on the Web are precise predictors of the upcoming influenza outbreaks.

– BBC

– New York Times

– WSJ Health blog

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Are prediction markets on deaths and assassinations SOMETIMES acceptable?

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BELOW IS THE CHART OF A SETTLED PREDICTION MARKET:

Will Patrick Swayze die before April 15, 2008?

It was settled on &#8220-no&#8221-.

HubDub CEO Nigel Eccles thinks that his traders &#8220-quickly came to the conclusion that the [early 2008] story [giving him 5 weeks to live] was bogus.&#8221- And Nigel Eccles asks, &#8220-Is this an example where a death pool prediction market is actually socially valuable?&#8221-

In my view:

  1. It&#8217-s the opinion makers external to HubDub who should decide this. If most people and/or lawmakers decide that prediction markets on deaths and assassinations are disgusting and unacceptable, then they should be pruned. We need goodwill towards the prediction markets if we want the real-money prediction markets to be legalized everywhere.
  2. Would Nigel Eccles accept a prediction market about when his wife (or kid) is going to die?
  3. Is there a social utility in knowing when exactly a celebrity is going to die (supposing that such a prediction market could be accurate)? For a head of state, a running politician, or a Justice, that information might have a value. However, in the case of a Hollywood celebrity, I don&#8217-t see where the value lays. A prediction market on the upcoming death of a celebrity would participate in that big, stupid circus that occurs today, with paparazzi and tabloids taking an importance that they shouldn&#8217-t have in the first place. Our youth would be better off browsing and betting on prediction markets about science and technology. We should elevate our global civilization. I don&#8217-t see any (social or individual) benefit about knowing in advance when exactly Patrick Swayze is going to die. I am scratching my head right now &#8212-and I still don&#8217-t see any reason why we should spend our precious time blogging on this issue, betting on that, or collecting probabilistic predictions on that. I just don&#8217-t. (If you have a counter argument, do publish a comment below.)
  4. The very best wishes to Patrick Swayze, by the way.

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Are prediction markets useful to you?

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It&#8217-s &#8220-pretty clear&#8221- that the prediction markets on political elections aggregate information from the polls &#8212-and from the political experts.

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Previously: #1 – #2 – #3 – #4 – #5 – #6

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It&#8217-s &#8220-pretty clear&#8221- that:

  1. InTrade has been over-selling the predicting power of its prediction markets.
  2. The prediction markets are information aggregation systems &#8212-not magical tools.
  3. The main benefit of a prediction market is to express an aggregated expected probability. Most of the times, this is of low utility.
  4. In complicated situations, this aggregation will contrast well with a poor reporting. In these instances, the prediction market is a useful source of information.

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The one thing I enjoy every Monday morning

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As a prediction market aficionado, what lights me up are stories about&#8230- (of course)&#8230- how the prediction markets are assessing important news. The HubDub blog publishes, every Monday morning, a post that rounds up the 5 most prominent (that&#8217-s subjective) news stories of the week, with the prediction market charts, so we can spot which outcome is the more likely, for each issue.

I find this weekly newsletter addictive. I read it with attention each Monday. It is simple, short, but well done and effective.

I wish InTrade, BetFair, and NewsFutures would publish such a prediction market blog.

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The HubDub prediction markets on assassinations could be somewhat useful in some cases -now that I am sober and that I think of it.

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I published 3 times my opinion that it is a nuclear scandal of apocalyptic proportions that HubDub allows prediction markets on celebs&#8217- death and assassination. My view is that this will attract strong criticism from people who are very strict on the issue of morality. And the prediction markets don&#8217-t need another polemique at this time.

But after reading Medemi&#8217-s comment, popped up an idea in my mind. Medemi tells about the assassination of Pim Fortuyn, an extremist politician in Holland &#8212-who received many death threats and did not get appropriate protection. His assassination was predictable. (He was indeed gunned down during a political campaign.) If, at the time, a prediction market had been opened on the likelihood of his violent death, the high probabilities would have attracted attention &#8212-and, as a result, maybe the Police would have granted Pim Fortuyn a special protection.

What do you think?

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Are collective intelligence solutions being oversold?

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Xpree CEO Mat Fogarty:

Chris,

Management struggles to understand and plan for the future. When forecasts are inaccurate, corporations incur huge costs due to inventory write-offs, stock-outs, misallocated resources or cost of capital. Collective intelligence delivers objective, accurate forecasts in real time, thus saving many millions of dollars for our corporate clients. The solution is not being oversold, to the contrary, the potential vastly exceeds current awareness and adoption.

&#8220-If foresight is not the whole part of management, at least it is an essential part of it&#8221- (Henri Fayol, 1916).

In my 10 years experience as a management accountant and corporate planner, I have witnessed multiple forecasts suffer from inaccuracy due to uncertainty and biases. Whether forecasting a launch date, sales volume or cost of development, it is the systematic biases due to incentive systems, politics and common cognitive errors that contribute more to inaccuracy than the uncertainty. The problem stems from the fact that the owner of a forecast is normally the owner of the business unit / sales team / project, and budgets and bonuses are based on forecasts. This necessitates game playing and politics and makes the development of an objective, accurate forecast near impossible.

Collective intelligence can overcome these problems by incentivising a diverse crowd of knowledgeable employees to share their insight, balancing the resulting estimates, and rewarding accuracy and timeliness.

However, we are at an early stage in the development of this opportunity. There is still work ahead of us to develop the ideal mechanism to combine simplicy of UI [user interface] with richness of information gathering. In addition, we need to further develop the way collective intelligence interfaces with traditional corporate structures, processes and systems. These are Xpree&#8217-s challenges&#8230- stay tuned.

Mat
CEO, Xpree