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Cantor Fitzgerald abandons plan to trade box-office futures contracts

Wall Street firm Cantor Fitzgerald wins regulatory approval for its plan to trade in box-office futures but decides to end its effort in the face of a likely government ban on such trading.

June 29, 2010|By Ben Fritz, Los Angeles Times

Wall Street trading firm Cantor Fitzgerald's application to trade futures contracts based on box-office receipts was approved by the Commodity Futures Trading Commission in a 3-2 vote Monday, but winning regulatory approval is a moot matter.

With financial reform legislation that would outlaw trading in box-office futures headed toward final passage, the company is giving up on its plans, said Richard Jaycobs, the executive heading the effort for Cantor Fitzgerald.

"The broader opportunity of motion picture finance is still something we have to evaluate, but we know now we're not going to do futures contracts," he said. "The bill is quite clear."

Though the financial reform bill isn't yet law, its box-office futures provision was made retroactive to June 1 by the House-Senate conference committee that hammered out final language for the bill last week. That would put a stake into both Cantor Exchange and its main competitor, Media Derivatives, which received final approval from the commission June 14.

Jaycobs said his firm was simply overwhelmed by the lobbying power of the Motion Picture Assn. of America, which on behalf of the six major studios persuaded Sen. Blanche Lincoln (D-Ark.) to insert a box-office-futures ban in her original version of the bill. The association also got House-Senate negotiators last week to not only keep the provision but also make it retroactive.

"I've really come to respect the MPAA's ability to be effective on [Capitol] Hill," Jaycobs said.

The major studios and some others in Hollywood had argued that box-office futures markets could create negative publicity for movies before they're released and would be too easy to manipulate. Backers have said they would be a useful financial tool for film investors.

Jaycobs' decision is a major defeat for Cantor, which in 2001 acquired the Hollywood Stock Exchange — an online game that lets players bet play money on box-office predictions — to help prepare for its move into real box-office futures.

The terrorist attacks of Sept. 11, 2001, devastated Cantor, then located in the World Trade Center, and delayed its plans. But between the acquisition and development over the years, as well as the work done by lawyers to receive regulatory approvals, Cantor has spent tens of millions of dollars on the concept, according to Jaycobs.

Jaycobs said that he hoped some of that work would be useful in other parts of Cantor's business and that his company might attempt to develop other financial products for the entertainment industry not related to futures contracts.

Robert Swagger, chief executive of Media Derivatives, couldn't be reached for comment Monday. However, last week he said his firm would attempt to find a way to launch despite the possible ban and that it might sue the MPAA because of alleged false statements made by the organization's interim chief executive, Bob Pisano.

ben.fritz@latimes.com

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