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.

Press releases:

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.

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.

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

[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.

That is from Alex Costakis, MD of HSX.

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

He seems to be a man open to suggestions.

CNBC on Cantor Exchange &#8212- Via Jason Ruspini

Fox Business on Cantor Exchange &#8211-

Financial Times:

All eyes on Hollywood futures


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

One Wall Street / Chicago fanboy hopes that political prediction markets will soon be proposed by the established derivative exchanges, who work more professionally than InTrade (in his view).

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In its upcoming proceedings, therefore, the CFTC should exempt prediction markets from regulations that would prevent them from flourishing, like requiring that such shares be traded on designated commodity exchanges.

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&#8230- wrote that academic guy in the Wall Street Journal. But he doesn&#8217-t mention that HedgeStreet and the Chicago Mercantile Exchange (and the CBOT) are all for the &#8220-excluded commodities&#8221- and the &#8220-Designated Contract Makers&#8221- way.

Honesty and fairness, when writing in a prestigious publication, would dictate that you mention your opponents&#8217- opinions.

Academia = Ivory Tower.

Will the Wall Street Journal give the same airtime to HedgeStreet and the CME Group?

Previous blog posts by Chris F. Masse:

  • The FaceBook profiles of the 2 most important men of the field of prediction markets
  • THE HUMAN GADFLY WHOSE OBJECTIONS ROBIN HANSON IS DUCKING…???…
  • Google now considers Midas Oracle as a major blog.
  • Horizon 2015: A long-term strategic perspective for the real-money prediction markets
  • Join our group at LinkedIn to have your “Prediction Markets” badge on your profile. It’s ‘chic’. (“Groups” info should be set as “visible”, in your profile options.) We are 63 this early Saturday morning —keeps growing.
  • If you have been using PayPal to fund your InTrade, TradeSports or BetFair account, please, check that horror story.
  • 48 hours after the launch of the “Prediction Markets” group at LinkedIn, we have already 52 members —both prediction market luminaries and simple people (trading the event derivatives or collecting the market-generated probabilities).

The Chicago Mercantile Exchange is not a friend of the prediction markets. Nor is the ISDA.

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Will the Chicago Mercantile Exchange write to the CFTC?

&#8230- asks Google&#8217-s Bo Cowgill.

That could be&#8230- However, I&#8217-m not holding my breath. Here&#8217-s why. The CME (along side the CBOE and ISDA) represents forces that does not push for the kind of financial innovations we are pushing here, on Midas Oracle. We are pulling for Web-based, de-intermediated, low-cost, event derivative exchanges. The financial dinosaurs (like the CME) do not.

Take a look at the CME&#8217-s 2003 letter to the CFTC about HedgeStreet&#8217-s application as a DCM. – (PDF file) – Here are the titles of the first 2 sections:

  1. HedgeStreet’s Proposal is Materially Deficient.
  2. The [HedgeStreet] Application Violates the CEA.

No need to go further. :-D &#8230- You have computed that the CME was (in 2003) no friend of HedgeStreet &#8212-and, thus, of our prediction markets. (For those who are just surfacing from an Afghan cave, yes, the CFTC did approve HedgeStreet&#8217-s application, finally, and told the CME to go fugging themselves.) So, I&#8217-m not holding my breath for a CME comment to the CFTC&#8217-s concept release on &#8220-event markets&#8221-. Saying that the CME is talking for the prediction market community is like saying the Ayatollah Khamenei was talking for priests, ministers, and rabbis.

As for the ISDA, they represent big institutional traders&#8230- who do not use exchanges ( !! ). What they say to the CFTC (PDF file), basically, is to be careful not to hurt the framework of the whole landscape. Well, thanks ISDA, but the CFTC knew that already.

As I said, 2 prediction market organizations will, each, submit their comment to the CFTC. I don&#8217-t expect that to be a deep read, with regards to derivative regulations. However, their industrial strategy might transpire, and that might be interesting for curious people like me. :-D

The 3 interesting takes about the &#8220-event markets&#8221- are from:

  1. the CFTC &#8212-if you are able to sense what their true opinion is.
  2. Jason Ruspini &#8212-(PDF file).
  3. Tom W. Bell &#8212-upcoming.

The future of US-based, non-sports, non-hedgeable prediction markets depends on those 3 poles of thought.

In the coming weeks, you&#8217-ll see many intellectual interactions between them.

The real question is: Will Jason Ruspini and/or Tom W. Bell have a proven impact on the CFTC process? I wish that, but both of them do stray away from the CFTC&#8217-s strict framework.

DEVELOPING&#8230-