Sunday, December 5, 2010

Box Office Futures Make Debut

A recent trivia item on the Internet Movie Database noted that the movie Takers was the first film to have its box office as the underlying interest of futures contracts. Intrigued, I decided to dig a little deeper.

Trading of Takers futures was approved by the Commodity Futures Trading Commission after a public meeting held to consider the issues arising from this unique product.

In March of this year, Trend Exchange (formerly Media Derivatives Inc.) requested CFTC approval to trade Opening Weekend Motion Picture Revenue collard futures and binary option contracts on Takers. Section 5c(c)(3) of the Commodity Exchange Act requires the CFTC to accept a contract unless the commission finds that the contract violates the Act. In its order approving the contracts, the CFTC found:

  1. Box office receipts are "commodities" for the purpose of futures trading, which for this purpose includes non-price-based measures of an economic activity, commercial activity or environmental event. The order lists many pages of contracts with similar economic underlying interests.
  2. The cash settlement price is derived from revenue numbers collected by Rentrak Corporation, a third-party data aggregator that has no direct monetary interest in any motion picture, and is disseminated throughout the industry. The underlying interest is therefore not subject to manipulation.
  3. The Commission made the exchange to adopt a rule requiring those who control a film’s marketing budget, release date or opening screen numbers and who hold at least 1,000 contracts to provide information to the exchange regarding decisions in these areas. The intention is to ensure they do not take actions such as delaying a release date or increasing the number of opening screens to benefit their futures holdings.
  4. The contracts provide a reasonable means for managing the risks associated with box office returns.