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Planned Film Exchanges Could Employ Futures Traders

Futures traders and sales and support professionals, get ready for a new asset class to work with: Hollywood film receipts.

In recent days Cantor Fitzgerald and Indiana-based Veriana Networks unveiled competing models of a planned futures exchange that would trade contracts on the value of individual films' box-office receipts. While similar proposals have surfaced before, now the time may be right for the concept to gain a following among natural hedgers - the major film studios. The Los Angeles Times reports:

If Universal Pictures, for instance, had traded a futures contract for The Wolfman it might have mitigated its losses on the recent flop.

"There is a tremendous amount of risk in every movie and a need to manage that risk," said Don Chance, a finance professor at Louisiana State University who has studied financial exchanges for the entertainment industry. "I would think a futures market would have great potential to do that."

Awaiting CFTC Approval

The Commodity Futures Trading Commission must approve either proposal before trading can begin. Both Cantor and Veriana say they expect regulatory approval within the next couple of months.

Beyond a go-ahead from the CFTC, the primary ingredient for a hiring binge would be a rapid ramp-up of buy and sell orders by parties with an economic interest in commercial movie releases. Cantor's demo last week created a nice buzz among film-industry types, the Times coverage suggests:

The Cantor Exchange ... demonstrated its system to 90 Hollywood executives in a packed Century City hotel conference room. Amid a spirited trading-floor atmosphere, the participants shouted out guesses and made bets on how much Alice in Wonderland might rake in at the box office.

On Wednesday, Indiana company Veriana Networks unveiled its own futures exchange for box-office receipts, called the Trend Exchange. The firm says its management includes veterans of the Chicago futures exchanges. "This product could help to even out the volatility of the movie business," Veriana consultant and ex-JPMorgan entertainment banker Clark Hallren told the Times.

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AUTHORJon Jacobs Insider Comment
  • gw
    gwong7915
    12 March 2010

    The last successful launch of a futures contract was the dow futures over ten years ago. Since then every new attempt has been a failure. The chances of this one taking off -somewhere between nought and zero to by my reckoning...

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