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CFTC-regulated, real-money prediction markets about movie box office – Cantor Exchange

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Cantor Exchange

http://www.cantorexchange.com/ &#8212- A twin site of the Hollywood Stock Exchange.

Here are my early thoughts about the &#8220-Cantor Exchange&#8221-. I regret to say that their &#8220-Cantor Exchange&#8221- website does not seem very usable. (I hope it is not a bad omen.) It is impossible for me to copy their explanations posted on their webpages (other than the 2 press releases) and to republish that material in this post.

The second thought that comes to my mind is that their offerings are not standardized (their event derivatives are described in HSX lingo), and I wonder whether the real-money traders, who are accustomed to dealing with the CME, the NYSE, or InTrade, but who are not familiar with HSX, will make the effort to adapt. We will see. (I don&#8217-t think that the HSX play-money traders will go speculating on this real-money prediction exchange.) The collateral question is, why would the Cantor Exchange (a brand-new exchange with not a single trader, as of today) be better positioned to organize event derivative markets on movie business than, say, HedgeStreet, InTrade, BetFair, or even the CME? Obviously, Cantor Fitzgerald (a bond broker) are thinking that they can leverage their Wall Street clientele and the HSX population to branch out and start up a brand-new, CFTC-regulated, real-money prediction exchange. It&#8217-s quite a big bet. I say &#8220-branch out&#8221- because starting off a real-money prediction exchange (Cantor Exchange) is quite different than running a play-money prediction exchange (HSX). Just look at how difficult it has been for HedgeStreet, which started off in 2004, and escaped bankruptcy in 2007 thanks to their rescue by IG Index. After 4 years, HedgeStreet is still not profitable, and it will probably take more years before it turns the first profit. Let&#8217-s wish a better future for Cantor Exchange.

I will update this present post, later on, linking to the reactions from the media and the blogs. (Cantor will be holding a conf call this Tuesday, so some media coverage will pop up over the next days.)

Here is a Financial Times news article, which won&#8217-t tell you much more than the 2 press releases re-published below.

Here&#8217-s Variety.

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Press releases:

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CANTOR ENTERTAINMENT TO ANNOUNCE MOVIE BOX OFFICE CONTRACTS

TO MOTION PICTURE INDUSTRY AND INVESTOR COMMUNITY

Cantor Fitzgerald Files Application for Domestic Box Office Receipt Contracts

Los Angeles, CA- New York, NY – (December 8, 2008) – Cantor Entertainment, which provides various services to the entertainment industry and owns the Hollywood Stock Exchange, is pleased to announce that Domestic Box Office Receipt contracts will soon be available to the motion picture industry and investor community. Cantor Fitzgerald, its parent company, announced earlier today that it has filed an application to launch the Cantor Exchange, whose first listed product will be Domestic Box Office Receipt contracts.

Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance of wide-release Hollywood movies. Domestic Box Office Receipt contracts will be a next generation film-financing tool that allows market participants to hedge risk and provides them profit opportunities based on the first four weeks of a film’s box office revenues.

“It’s clear from our conversations within the industry and investment community that there is a tremendous opportunity to introduce this exciting new tool to complement existing film financing alternatives. The market for Domestic Box Office Receipt contracts offers the motion picture industry, investment funds, banks and all other prospective investors a federally regulated trading exchange dedicated to the entertainment industry,” said Andrew L. Wing, President and Chief Executive Officer of Cantor Entertainment. “Our involvement in Domestic Box Office Receipt contracts reflects our continuing commitment to expand Cantor Entertainment’s numerous services in the entertainment industry.” The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009. Cantor Exchange is subject to final approval by the Commodity Futures Trading Commission (“CFTC”).

About Cantor Entertainment
Cantor Entertainment, a division of Cantor Fitzgerald, L.P., provides services to the entertainment industry. Cantor Entertainment also owns the Hollywood Stock Exchange (www.HSX.com), the world’s leading virtual entertainment stock market.

About Cantor Fitzgerald, L.P.
Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.

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Cantor Fitzgerald Announces Application for Cantor Exchange

Domestic Box Office Receipt Contracts are Expected to be First Contract Market

A New Tool in Film Finance

NEW YORK&#8211-(BUSINESS WIRE)&#8211- Cantor Fitzgerald, L.P., a leading global financial services firm, announced today that it has filed an application with the Commodity Futures Trading Commission (“CFTC”) to launch the Cantor Exchange. Cantor Exchange intends to list Domestic Box Office Receipt contracts as the exchange’s first traded product.

“The Cantor Exchange and our intention to list Domestic Box Office Receipt contracts reflect our continuing commitment to innovation in the finance and entertainment sectors,” said Howard W. Lutnick, Chairman and Chief Executive Officer of Cantor Fitzgerald.

Subject to final regulatory approval of the Cantor Exchange application, Domestic Box Office Receipt contracts will offer film finance professionals and traders a new opportunity to hedge and speculate on the theatrical performance (ticket sales) of major film titles. Domestic Box Office Receipt contracts will be a next generation financial management tool that allows film professionals to hedge risk and provides speculative opportunities to other market participants based on the first four weeks of a film’s box office performance.

The first Domestic Box Office Receipt contract is expected to be listed on the Cantor Exchange in the first quarter of 2009, subject to final approval of the Cantor Exchange application by the CFTC.

About Cantor Exchange

Cantor Exchange is launching the first trading platform based on movie box office revenue, and expects to begin listing Domestic Box Office Receipt contracts in the first quarter of 2009, subject to final regulatory approval. Cantor Exchange is a division of Cantor Fitzgerald, L.P., one of the world’s leading financial services firms, and is partnered with Cantor Entertainment, another subsidiary of Cantor Fitzgerald, which provides services to the entertainment industry and owns the Hollywood Stock Exchange® (www.HSX.com), the world’s leading virtual entertainment stock market.

About Cantor Fitzgerald, L.P.

Cantor Fitzgerald is a leading global financial services firm. The Cantor Fitzgerald franchise includes institutional equity and debt sales and trading, investment banking, private equity, as well as other businesses and ventures. For over 60 years, Cantor Fitzgerald, a proven and resilient leader, has been committed to delivering a unique brand of unparalleled product expertise, innovative technology and customer service to its clients around the world. For more information, please visit www.cantor.com.

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UPDATES WILL BE POSTED BELOW, LATER TODAY (AND DURING THE NEXT DAYS)&#8230-

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[T]he initiative is not for an application for a product extension of HSX. Rather it is an application for the launching of a new futures market, the Cantor Exchange, which will list Domestic Box Office Receipt Contracts. The contracts will also be known as Movie Box Office Contracts.

There are some similarities with HSX in that Movie Box Office Contracts are modeled on the MovieStock methodology of our site. For example, the contracts will be based on four weeks of a film&#8217-s domestic box office revenue. The regulatory approval process is inherently uncertain, so it&#8217-s a bit premature to say we are moving into real-money film trading markets just yet, but that is our intent.

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That is from Alex Costakis, MD of HSX.

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Here&#8217-s the Cantor Exchange project leader: Richard Jaycobs.

He seems to be a man open to suggestions.

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CNBC on Cantor Exchange &#8212- Via Jason Ruspini

Fox Business on Cantor Exchange &#8211-

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Financial Times:

All eyes on Hollywood futures

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Previously: Should the Hollywood Stock Exchange become a real-money betting exchange? – 2007-10-04

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IG Group buys HedgeStreet for $6,000,000.

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Just as predicted by our Deep Throat in early October 2007 &#8212-&#8221-They are packaging HedgeStreet for a closing/fire-sale.&#8221-

RTT News.

U.S.-based sed HedgeStreet, which has operated the HedgeStreet Exchange, has liabilities of approximately $1 million and operating costs of approximately $325,000 per month. Currently, the company is not generating any revenue.

Hemscott:

IG Group chief executive, Time Howkins, said the acquisition gives the company the necessary regulatory approvals, technology, personnel needed to operate an exchange for US retail clients to trade in binary options. The company said it plans to re-launch the exchange around the end of its current financial year, after making some modifications, mainly the range of contracts offered.

IG Group:

Corporate Profile

IG Group Holdings plc offers speculative investment products to a retail and professional client base, through a number of well-known brands.

The group&#8217-s principal businesses give clients the ability to trade on financial markets. Our longest established business is financial spread betting, where we are the world&#8217-s leading provider (based on turnover), servicing a retail client base, primarily in the UK. Our rapidly growing Contracts For Difference and foreign exchange business services retail clients and market professionals around the world from offices located in the UK, Australia, Singapore and Germany. The group also offers spread betting on sports, entertainment and political events and binary betting on both financial and sports markets. More than 90% of the group&#8217-s client transactions are executed electronically.

2006-7 headlines

– Revenue up 36% at ?122.0 million
– EBITDA up 34% at ?70.4 million
– Strong EBITDA margin of 57.7%
– Diluted earnings per share up 33% at 14.52p
– Final dividend 6.5p per share- total dividend 8.5p per share
– EBITDA margin improvement from 54.5% in H1 to 60.3% in H2
– Successful launch of TradeSense in UK and recent launch in Australia
– Launch of PureDeal dealing platform
– Current trading is strong

The group&#8217-s business has grown rapidly since the late 1990s, with revenues having grown at a compound annual rate of roughly 40% over the past nine years. We have also developed IG Group into a significant multinational operation.

&#8212-

Note: IG Group does not accept bets from customers based in the United States.

Author Profile&nbsp-Editor and Publisher of Midas Oracle .ORG .NET .COM &#8212- Chris Masse&#8217-s mugshot &#8212- Contact Chris Masse &#8212- Chris Masse&#8217-s LinkedIn profile &#8212- Chris Masse&#8217-s FaceBook profile &#8212- Chris Masse&#8217-s Google profile &#8212- Sophia-Antipolis, France, E.U. Read more from this author&#8230-

Read the previous blog posts by Chris. F. Masse:

  • Barack Obama is the 44th US president.
  • We already have prediction markets in future tax rates. It’s called the municipal bond yield curve.
  • DELEGATES AND SUPERDELEGATES ACCOUNTANCY
  • O’Reilly – Money-Tech Conference
  • Google Profiles
  • Event Derivative Exchange HedgeStreet is baaaaaaaaack… from the grave.
  • Sports Derivative Forum

HISTORY: Prediction Markets Timeline

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For an updated version of this document, see the &#8220-paged&#8221- Prediction Markets Timeline.

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CHRONOLOGY &amp- HISTORY: Prediction Markets Timeline

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Feel free to post a comment or contact me, and I&#8217-ll correct or add a factoid. Thanks.

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#1. Historical Prediction Markets

According to Paul Rhode and Koleman Strumpf, prediction markets almost never got it wrong forecasting the 19 presidential elections that took place from 1868 to 1940. (PDF)

#2. The three Iowa Electronic Markets founders (Robert Forsythe, Forrest Nelson and George Neumann)

&#8220-We ran our first market in 1988. We didn’t have regulatory approval at that point so we were restricted solely to the University of Iowa community. We had under 200 traders and under $5,000.&#8221- &#8211- [Robert Forsythe – PDF file]

– [CFTC’s no-action letter to the IEM – 1992 – PDF file]

– [CFTC’s no-action letter to the IEM – 1993 – PDF file]

#3. Robin Hanson

a) Robin Hanson set up and ran a rudimentary prediction exchange (a market board, PPT file) in January 24, 1989. The outcome to predict was the name of the winner of a Poker party.

b) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange &#8212-at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.

Robin Hanson: &#8220-I started a market at Xanadu on cold fusion in April 1989. In May 1990, I started a market there on whether their product would be delivered before Deng died.&#8221-

c) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a bunch of imagination-based prediction markets. See the Murder Mystery Evening described by Barney Pell &#8212-circa June 8, 1989.

d) Until evidence of the contrary, it seems that Robin Hanson was the first to write a paper on prediction markets created and existing primarily because of the information in their prices (as opposed to markets created primarily for speculation and hedging).

Could Gambling Save Science? &#8211- (Reply to Comments) &#8211- by Robin Hanson &#8211- 1990-07-00
Market-Based Foresight: a Proposal &#8211- by Robin Hanson &#8211- 1990-10-30
Idea Futures: Encouraging an Honest Consensus &#8211- (PDF) &#8211- by Robin Hanson &#8211- 1992-11-00

e) Robin Hanson godfathered the Foresight Exchange (created in 1994) and NewsFutures (created in 2000).

f) Robin Hanson invented the concepts of decision markets (PDF) and decision-aid markets.

g) Robin Hanson invented a new market design (for the 2000-2003&#8242-s Policy Analysis Market), the Market Scoring Rules, a mix between CDA and Scoring Rules &#8212-now in use for most enterprise prediction markets and public, play-money prediction exchanges. Note that MSR is mainly used in a one-dimension version, but many researchers are interested in its combinatorial version.

#4. Other Pioneering Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs

a) The Foresight Exchange was founded on September 22, 1994 by Ken Kittlitz, Sean Morgan, Mark James, Greg James, David McFadzean and Duane Hewitt. The Foresight Exchange is a play-money prediction exchange (betting exchange) managed by an open group of volunteers. It pioneered user-created and user-managed, play-money prediction markets. Any person can join the Foresight Exchange and interact with the rest of the Web-based organization. An independent judge (independent from the owner of the claim) should be appointed among the volunteers. [Thus, it’s not “DYI prediction markets”.]

b) The Hollywood Stock Exchange was founded on April 12, 1996, by Max Keiser and Michael Burns. See the patent for the Virtual Specialist. For more info, see: Is HSX the “longest continuously operating prediction market”??? &#8211- REDUX

c) BetFair was founded in 1999 by Andrew Black and Edward Wray, and was launched in England in June 2000. As of today, BetFair is the world&#8217-s biggest prediction exchange (betting exchange, event derivative exchange).

d) NewsFutures was founded in March 2000 and launched in September 2000 in France and in April 2001 in the US by Emile Servan-Shreiber and Maurice Balick. See: NewsFutures Timeline. NewsFutures was the first exchange to let people buy or sell contracts for each side of a binary-outcome event. The advantage of this design is that it avoids the need for &#8220-shorting&#8221-, a notion that tends to confuse novice traders. NewsFutures later extend that approach to deal with n-ary outcome events while implementing automatic arbitrage.

e) TradeSports was launched in Ireland in 2002 by John Delaney. InTrade was later purchased and became a non-sports prediction exchange (betting exchange). As of today, InTrade is the biggest betting exchange on the North-American market &#8212-where betting exchanges are still illegal. As for TradeSports, it closed at the end of 2008, alas.

#5. The Policy Analysis Market Brouhaha

a) Robin Hanson was the main economist behind the 2000–2003 US DoD&#8217-s DARPA&#8217-s IAO&#8217-s FutureMAP–Policy Analysis Market project. (For this project, Robin Hanson invented a new market design, the Market Scoring Rules.) On July 28, 2003, two Democratic US Senators called for the termination of PAM, the the big media gave airtime to their arguments, and the US DOD quickly ended the IAO&#8217-s FutureMAP program.

b) The second branch of the 2000–2003 US DoD&#8217-s DARPA&#8217-s IAO&#8217-s FutureMAP program was handled by the Iowa Electronic Markets and was intended to predict the SARS pandemic. (This project later gave birth to IEM&#8217-s Influenza Prediction Market.)

#6. James Surowiecki&#8217-s The Wisdom Of Crowds

a) James Surowiecki&#8217-s book, The Wisdom Of Crowds, was published in 2004.

b) Impact of The Wisdom Of Crowds.

#7. Recent Public Prediction Exchanges (Betting Exchanges, Event Derivative Exchanges) and Inventors/Innovators/Entrepreneurs

a) US-based and US-regulated HedgeStreet was launched in 2004 by John Nafeh, Russell Andersson, and Ursula Burger. A designated contract market (DCM) and a registered derivatives clearing organization (DCO), HedgeStreet is subject to regulatory oversight by the Commodity Futures Trading Commission (CFTC). In November 2006, IG Group bought HedgeStreet for $6 million.

b) Inkling Markets was launched in March 2006 and co-pioneered (with CrowdIQ, which later bellied up) the concept of DIY, play-money prediction markets.

c) In September 2006, TradeSports-InTrade was the first prediction exchange (betting exchange, event futures exchange) to apply Chris Masse&#8217-s concept of X Groups. See: TradeSports-InTrade prediction markets on Bush approval ratings.

d) HubDub was launched in early 2008 and is the second most popular play-money prediction exchange, behind HSX.

#8. Enterprise Prediction Markets

a) Until evidence of the contrary, it seems that Robin Hanson was the first to set up and run a corporate prediction exchange &#8212-at Xanadu, Inc., in April 1989. See: A 1990 Corporate Prediction Market + Anonymity is important for employees trading on internal prediction markets.

b) In the 1996&#8211-1999 period, HP ran a series of internal prediction markets to forecast the sales of its printers.

c) Eli Lilly sponsored 10 public, industry-level prediction markets in April 2003 (on the NewsFutures prediction exchange).

d) Eli Lilly began using internal prediction markets in February 2004 (powered by NewsFutures).

e) Google&#8216-s Bo Cowgill published about their use of internal prediction markets in October 2005.

f) Since then, many companies selling software services for enterprise prediction markets have been created.

#9. Disputes Between Traders And Exchanges

a) The scandal of the North Korean Missile prediction market that erupted in July 2006 is, as of today, the biggest scandal that rocked the field of prediction markets.

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