Monday, June 21, 2010

Film Futures - will the markets never learn?

Federal regulators on last Monday (14th June 2010) approved a plan by Media Derivatives Inc. to begin trading futures contracts based on box-office revenue,  even though the film industry lobbied Congress to ban such film-related trading, according to Michael Cieply reporting in The New York Times.

The Commodity Futures Trading Commission approved a request to trade futures and option contracts tied to the opening weekend box-office revenue of the movie “Takers,” a crime thriller set for release in the United States on Aug. 20 by Screen Gems, part of Sony Pictures Entertainment.

The Motion Picture Association of America, which represents Sony and the other major studios, opposed such contracts, arguing that they will be easily manipulated and may hurt the performance of films, as market players begin looking for ways to affect a movie’s opening.

Stupidity is up and running once again, easily besting common sense and yet again running rings around smarts and understanding. So we will have traders using uncollateralized leverage toi create instruments that will deliver losses of multiples against core price fluctuations based upon risks in which they have no stake or interest.

Wow, I just wonder how the CFTC got to be so dumb in such a hurry! They are blessing the opportunity to create a whole new market that almost EXCATLY replicates the Credit Default Swap market which has been used effectively to destroy wealth in finacial markets over the past three years. 

When will the regulators really begin to understand that the concept of 'interest at stake' simply has to be prsent in at least one party to a risk based transaction.  Until this become the 'norm' markets will replicate the excesses and wild swings that we have seen time and again, and provide more than adequate fodder for those who would see market driven economic models cast asunder. 

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