The Motion Picture Association of America is seeking to discourage the Commodity Futures Trading Commission, the federal agency that regulates futures markets, from approving a new type of futures contract based on box office receipts. In its letters to the CFTC and statements to the press, the MPAA has asserted that futures trading is a form of “legalized gambling” that has no commercial interest or value to the public.
Nothing could be further than the truth. Futures markets have proven to be vitally important mechanisms for risk management, as evidenced by the phenomenal growth in the use of futures contracts by a wide range of commercial and industrial enterprises, both here and abroad.
The MPAA also claims that these new contracts could lead to “rampant speculation and financial irresponsibility.” It is clear that the MPAA is not familiar with the futures markets or the regulatory framework within which they operate. One of the principal lessons of the recent financial crisis is that futures markets performed flawlessly under the highest levels of stress. This was due in no small measure to the fact that futures markets operate within a regulatory scheme that has been developed and perfected over many decades.
No one can argue that the movie-making business is without risk or that there is no need for effective risk management tools. The potential introduction of innovative instruments for managing that risk should be applauded rather than criticized.
The FIA has no view on whether or not the proposed movie futures contracts will succeed. We encourage the CFTC to evaluate these applications on their merits and let the marketplace decide.
