UsableMarkets

From the FT we learn that the Commodity Futures Trading Commission has given the go ahead to exchanges (such as the Hollywood Stock Exchange and The Trend Exchange) where derivatives based on movie box office receipts can be traded.

An editorial from the FT backs up the CFTC’s decision, arguing this should enable the film industry to take more risks and, as a results, we should get a better selection of more diverse films. From the editorial:

Yet in treating films as commodities, the CFTC is preventing movies becoming even more commoditised than they are now. Difficult economic conditions make film financing tougher. Without new ways to offset the costs of a box office wipeout, the danger is that the only movies to get made will be those that studios are confident will be sure-fire hits. This would be fine for those content with a diet of endless instalments of popular franchises – imagine Twilight: Yet Another Lunar Event, say – but less good for those who prefer greater variety.

As someone who would like to greater variety of interesting films, I can only hope this is indeed the result. In theory, it should work. Simply put, if you allow people (in this case movie makers) to hedge away the risk of a venture, then they’ll be more likely to take this risk … and potentially make the great movie that otherwise would not have been made.

Extend this concept to other areas of life (as Robert Shiller has in The New Financial Order: Risk in the 21st Century), and you see how derivatives could protect people against the pitfalls of taking risks — such as going back to school, or attempting to be a concert violinist — and therefore help create more beauty, innovation and personal satisfaction in the world.

When can I short this?

~alex