themselves, the firewall, the people have knowledge of the box office can the actual box office receipts, we are examining again whether those firewalls are sufficient for these particular contracts, these concerns have been raised about who really has this type of dollars. >> if you were to do that and say that all of the producers, directors, and actors and the crew, the people involved in the promotion of the movie, and so on, were not allowed to participate because they have a better idea than the average public about whether this movie will be and avatar a whether it's going to be a bust, correct? that would be a concern. but aren't those the same people that you ordinarily are wanting to have participating in commodity trading? because they are the ones who benefit from one of the principal purposes of the

commodity trading, which is to take the risk out of what you're investing in, like a farmer being able to buy or sell corn futures because he wants to average out the future price because whether or other market conditions might affect his price. or somebody and manufacturing who is concerned about the price of natural gas or oil that they use as a resource for their business, they want to buy futures. southwest airlines, very notoriously during the spike up in prices, they had bought jet fuel futures, or oil futures, or something that allowed them to have a competitive advantage because they have built in a hedge against the risk of higher prices at a time when prices didn't go higher. but here you are our document eliminate from the very marketplace the people who might most benefit from being able to hedge, because they don't know for sure whether the movie is going to be a hit or not.

and, therefore, if they could sell futures on it they would take away the reward of this smash hit but they would also eliminate the crash of the total dud. so it seems to me that the bottom line here is that we're not talking that really a commodity. we are talking that each individual unique product, and the very people who would benefit from commodity futures trading wood, of necessity, have to be excluded because they could manipulate it. >> typically, the other example, and i think your point is well taken, and oil company, for example, the people inside and out company is allowed to trade on what they believe will be the price of oil. they may have specific knowledge about whether a field is coming on or not. they may have superior knowledge of what's going on in the oil market. but presumably, those traders do not have knowledge of exactly

what the price on the new york mercantile exchange would be. so per se, it's not illegal or unlawful for some people. >> but like we said earlier, one barrel of oil is not much different than the next barrel of oil. but one motion picture is completely different than the next one. and then it's also subject of which is a, manipulation of you who are not actually engaged in the production of the movie? for example, movie reviewers or entertainment companies that can play up the movie on their television networks, or on the internet, or in other marketplaces. they also could say, well, let's buy some futures in this movie and then let's really push back out of this movie to try to drive up the box office. or let's buy futures and then let's pan the movie as if we can drive it right through the floor and make a profit on selling, you know, the failure of the

movie. i don't trading commodities so i don't know the puts and options and so on federal involved here, but nonetheless, it seems to me that a lot of people could try to profit from this and manipulate it. were as there's less what you can say about 80-barrel of oil or quantity of some other source of energy or food, or even a currency like the euro, or other things. >> india, the kinds that you mentioned about potential for manipulation, the different characteristic of these contracts that you have mentioned, we will be looking at all the very close in the product review. we have initially, as the condition of the approval of the exchange itself have the firewall, but whether that is sufficient or not in light of these particular contracts, something we are going to be looking very closely at. >> thank you, mr. chairman.

>> thank you. chairman peterson? >> thank you, mr. chairman. so in your view, or the commission's view, movies are a commodity? >> the contracts we're looking at indeed whether these are to produce for future delivery. >> so if you decide if you prove this, then you're deciding they are a commodity? >> if we were to approve it. >> and apparently, you're thinking about having anybody that knows anything about this can't trade in it? >> we -- >> from what i understand. >> the distinction, the current firewall is between the people who actually know what the number speed is i understand it, but there's also a discussion, exclude anybody who is anything to do with the movies from the. >> we're considering for the

current exclusion is brought. >> which are document and is authorizing gambling. i mean, maybe it should be regulated like states or something. i don't know. i mean, if you include anybody that's involved in this, then the only people you have left are people that are gambling on this basically. right? i mean, i'm just trying to understand what's going on here. >> if we determine that the contract, with whatever conditions that may be placed on it, satisfy the condition of the commodity exchange act and are regulation, then it will be permitted to be traded on these exchanges. if we make that determination for these products. >> so, can of the other derivatives created off of these then?

if these are approved, would we be of help to credit default swaps be set up to further make bets against what's going to happen, or to protect? >> well, if it were -- if it would fit the definition that somebody traded an instrument, it would fit the definition of swap under current law, we would have to look. that might be something that would not be within our jurisdiction because it would be excluded from our jurisdiction if it fits the definition of swap and it was traded by people to trade swaps. so that would certainly be possible to create a swap derivative. >> is that being done not at all? >> i wouldn't have knowledge of that. >> i mean, they raise money to finance these movies. you know, i don't know, i guess that would be one thing that i don't know if you could tell us

that. >> presumably under current law if someone were to create a swap or as a futures contract, based upon movie box office receipts and sell it to only the people who met the statutory criteria, parties called in and the actual contract participants, then that would not be something traded under, according to the, specify that would not be something in our jurisdiction. they could do that on the outside of the cftc jurisdiction. >> unless we pass a bill here. >> exactly. and the senate apparently, has a bill they moved out of the ag committee corporation put a prohibition on these contracts, is that correct? >> that's my understanding. >> have you looked at the language of that? >> i haven't seen the final -- we understand that division has been there though we haven't seen the final language but it was just reported out yesterday.

>> and we can do that, the senate, and legislation, we can many particular type of contract? >> you can exclude, right now in the act, onions are excluded from the definition of commodity. so certainly congress can put in the definition commodity, congress can take a. >> that's how they've done. they said movies are not a commodity. >> i believe that's what the box office receipts, i believe that taking it out of the definition of commodity. >> all right. thank you, mr. chairman. >> thank you. the chernow will recognize the gentleman from missouri. >> thank you, mr. chairman. mr. berkovitz, can you give me a definition of what you believe a movie or motion picture to be? something to put on an exchange. >> the definition of a motion picture? we have not, cftc has not

undertaken to define what a motion picture is. >> so we don't know -- to me that's a pretty important point. we don't know if we have a motion picture. it could be anything from what we believe is a big blockbuster avatar, all the way down to, i made a list of here, a documentary, x-rated movies, cartoons, and by your box office receipts, it's added a hundred movie screens, we have made for tv movies, which generate income from the standpoint that they are put on tv and advertisers pay to have their advertising shown during the showing of that movie. is that going to fall under the definition hear of someone and ashley traded contract on a movie that's being made for tv? if we don't generate enough advertising revenue, to pay for the production of the movie, that the producers are covered? is that something that could

also be construed here to fall on your definition of movie? >> the contract terms, when i talk about our product approval, approval of the contract terms coming each of these contracts, contracts for future delivery. they have specification in the contract, what can be traded, which types of movies can be traded, and i don't have the application right in front of me. but it is specified in the application. that is portable we are reviewing, is what are the movies or what may be that will be subject, whose box office receipts will be something that will be put on the exchange. so that is something that we're looking at. what are -- what is going to be subject to these box office receipts. >> to me it seems like you're going to have to nail down the definition of what a motion picture here is, because i think

you can construed to be any of those things i mention. we're going to be talking about documentaries, x-rated films, that's going to go out there and produce one of those and they want to protect themselves. you've got cartoons that all of those things are types of motion pictures that could fall under your definition here of 600 movie screens. you look at a tv screen come is that a movie screen? i think at this point, you know, your terminology will have to be nailed down a little bit more inviting to really get -- right now we have a whole list of things come we're financing anything that can be put on a movie screen, including woods put on a tv screen. in my judgment. it's very concerning to me. right now, is there a defined market, are there some folks out there that really want to trade in these things right now? or is this the cantor group hoping there's good to be

something happen? is a defined group looking to take the risk off of these folks do? i think probably the witnesses, on the second ballot, might be in a better position. our role is to determine whether in fact these products, some of the issues you describe meet the specifications in the act. and what indeed -- >> let me ask this question then. what d.c. is the inherent problem with the situation from your standpoint as cftc? >> our goal is to ensure that any contracts that are traded on our regulated facilities are not susceptible to manipulation, that they are appropriate position limits on these contracts to ensure that no single entity has too great a share of the market and that could influence the price is by having too great a share. and that the settlement process, process for determining that the final price of these contracts, the box office receipt number,

that process has integrity and it's a reliable number, and the market can have confidence that it acted. that's her statutory role, that we have been directed to do under the act. >> okay. so mr. peterson asked a while ago and it ain't there been a couple other folks refer to the numbers of the people have access to the in movie production, would it be the actors are anybody who works on the set, any buddy, the writers, whomever, all folks at this point are not prohibited to participate in this. are you looking to try to do that? >> we're looking to draw the appropriate firewall, if you make, between people who have actual knowledge of box office receipt numbers who will know what that price is, and to ensure. they were not be able to trade or give information to others. whether that is the full extent of the separation, that is something we're looking at. it is part of the approval process. >> thank you, mr. chairman.

>> the chair recognizes the gentleman from georgia and. >> thank you, mr. chairman. i was out for a little while meeting with folks so i may be asking questions that are the asked and answered that if i do, i apologize for that. it's hard for me to see who takes the other side of this product. if you don't exclude insiders. so, you know, the movies introductions, something occurs, it looks like it's just not going to produce, basically the houses on fire but we are the only people who know it. . .

i'm a little surprised though that the cftc is, as part of the approval process coming up with this firewall concept. can you give us examples of other products where you've got firewalls? is this sort of a new concept for these products or is there other products where you've got firewalls? i know cftc personnel specifically can't invest and other people who have unique knowledge, that owners of the exchange, things like that but, beyond that, can you pick a commodity where the cftc has imposed some sort of firewall concept like this. >> i believe it is a new type of condition. >> well, i don't like the fact that, we're very clumsy

with our efforts to legislate in this arena. witness the fact that we've got an exception for on johns for -- onions for gods sakes. i don't think we really want to set up a regime where everybody is running to us because they're worried some product might be approved inappropriately by the cftc so we start adding to the list. it is now onions and now movies, whatever, i don't know what it will be. seems to me the cftc needs to help us out, coming up with some principle or the parties here need to come up with some principle that can guide the cftc and guide congress in concluding, yes, no. this is an appropriate product. this is not an appropriate product, and i just don't sigh how firewalls cut it. it is a license to lie, is basically what it is. hard for me to believe that the other side to the deal, being sophisticated parties would believe the firewalls

would actually work. that you think you need a firewall suggests you're worried about all kinds of manipulation issues. it is one thing for the party that is putting together the product to feel like it needs to have a firewall because nobody will buy the product otherwise. it is not thing for the cftc to say there has to be a firewall. that suggests to me that the cftc has very limited confidence in the product, or, the cftc is worried about manipulation. this is an extraordinary too focused, too much of a rifle shot product here where it would be too easy for people to manipulate the price and consequencely the market, that small market. i would like for you guys to come up with principles other than firewalls. if firewalls don't exist for any other commodity, it seems a big stretch to me for the cftc to say we'll come up concept for this particular commodity without a broader discussion with

congress about the cftc's appropriate role and whether or not the cftc should be about the business of approving products with fwir walls. gets close to, wandering into, there's a big difference, at least historically as i understand it the big difference between the sec and cftc work where these exchanges are concerned. we want want insider information. it is all price discovery stuff. whatever information you get you bring it to the table. with the sec we're worried insider. they have authority to pursue insiders. you're kind of setting up an insider trading regime within the cftc without gone through some legislative process to determine whether the cftc's role has hank changed. i'm expressing my concern there doesn't appier to be product approved by cfc or any exchange where has this firewall in it. >> thank you, sir. >> thank you, mr. marshall. you made some points we've

been hearing about. so i appreciate that. at this time we'd like to recognize the gentlelady from colorado, miss markey. >> thank you very much, mr. chairman. so obviously this is brand new territory. there is a lot of concern. i think legitimate concern raised here this morning. let me just take in a little different vein. you have expertise at the cftc in traditional commodities that are traded. this is a new product. what kind of expertise do you have on hand right now with your current staff? how do you plan on developing the expertise that you're going to need in-house to make sure that these products are not susceptible to ma tiplation? -- manipulation. >> our first defense of course will be the exchanges themselves. they're required to police their own markets. we've, that is a condition much their approval of the exchanges that. that they have surveillance

and they have anti-manipulation processes in place and both of the exchanges i believe have contracted with the national futures association to undertake that, who has the expertise to do this. they do these surveillance, market surveillance programs for a number of exchanges. so the exchanges are the front lines in this and, they have submitted their, their programs to us. that's been part of the approval process. on top of that the cftc surveillance program is in addition to that. and indeed, to address that very concern, the, market surveillance systems, that are, they're required to have pursuant to the designation, criteria and the core principles, are something that we have, with we have looked at and found they are adequate. so it is not just the cfc and it telephone and our

staff overlooking the contracts. it will be the exchanges and the national futures association also. >> of course congress is looking at legislation to regulate derivatives, so you will already have a lot more on your plate within the next year. and then this is taking on, additional work and an additional commodity. what are your staffing levels like right now and with the exchange in order to handle all this additional work, regulations that are going to have to be written, staff that has to get up to speed on new products. >> the congress and the administration have been very supportive of increasing the cftc resources in the past few years to meet these additional responsibilities, both in terms of the current volume of futures trading and current contracts continues to increase with new products coming on. as you mentioned with the legislation which will require substantial new resources. i believe that's in our budget request. so it's a very real concern

that the agency have adequate resources to undertake both these new mark within existing authority as well as new authorities we may get under the legislation. no thank you, mr. chairman. for holding this hearing and i yield back. >> thank you. chair recognizes gentleman from minnesota. mr. wallace. >> thank you, berkotivz. i appreciate it. we're all trying to get handle what is happening here. an interesting discussion and important one. because the need is always there for financial instrument innovation and, trying to balance those things out. i'm interested to hear from mr. jaycobs and the folks from cantor. kind of impeccable timing bringing up a new financial instrument in this environment. but, i think that's the nature of it. we have to be open to be able to hear that. couple questions i have in watching this, trying to understand your position, not just on this issue but a little broader. do you see yourselves as a

passive, pass-through to make sure the rules are enforced exactly as you interpret them? or do you see yourself to anticipate potential problems and being more proactive against those? i'm kind of getting the feeling, it seems to me, that, this may be the proper role. i'm trying to understand it. it is passive, that is the rules and they fall within the rules so we've got to do it? >> i would describe it as, very active enforcer of the rules that we have. we have the rules and we have to follow the rules. >> that's right. >> we try to be very proactive, anticipating and looking ahead to avoid problems, rather than simply looking behind. >> i want to make sure that i, fall on the right side of this. do you see it, is it the appropriate role of the cftc to determine if there's a need for this product? or is that for the market to determine, those folks coming to you? >> that's not, it is not within our purview to determine whether indeed there is a need or not. >> okay. so that might be kind of at

the heart of this. some of us are trying to grapple, is there a real need for it, what's it for but asking you to do that is inappropriate position to put you in, is that correct? am i summing that up right. >> that's not something that is one of the criteria for approving these products or not. >> i think we're all struggling with this. it may seem like simplistic questions because i'm trying to understand this and trying to understand the definition of a futures. i don't want to i don't want to go down the president did at one point pejorative for las vegas and there is very specific reason for that. i'm trying to understand how this is different than a wager? i say, for example is this a bad example of something like the minnesota vikings. they field a team. they put it together. is there a futures trading how well they do this year? is that different or is that a wager to determine whether they win the super bowl or not? >> there's no, that's nothing that's traded on any of the futures, our futures

exchange. >> is it different than this by deaf igs? is it different than the movies futures? you've got a product? you have a investors get into it. you can buy into the studio. you get dividends off that on regular exchange on the big board. you can do all of that, about you performance of it tends to be based on more of a wager because of all these factors people brought up. that's what i'm trying to understand if this is the appropriate place for this? i'm trying to see this i think it would be appropriate for me on what i know as, as a casual observer of movies, to bet which ones will hit big and which ones aren't. but that is wagering it seems to me. i don't know, i'm trying to get from you are expertise on this. >> we don't really approach, we don't really approach the question from that perspective. somebody comes in with application and says we would like to trade a contract for future delivery or option on a, on, certain

commodity and we look at that application. we, are proactive whether, indeed, the contract meets statutory standards. whether it is acceptable or not to manipulation. -- susceptible. whether limits and integrity of the process. so we do a very thorough active review of that as it is presented to us. >> so you're operating inside the framework you were given. that is appropriate. some of these are for the next panel. >> thank you. thank you for your patience and willingness to understand that. i yield back. >> thank you. chair recognizes. mr. schrader? >> thank you, mr. chairman. i'm biased, one of the maybe few members does not worship at the grail of liquidity and derivatives in august body of ours. i appreciate what you do and cftc has a stellar record it will take some convincing to me is good idea. what i heard so are it will be up it us to decide, yes

or no passing legislation. greet another on i don't know exemption. i think that is unfortunate. i see this ripe for manipulation. i see no overriding public interest in this at all. frankly the people that are most affected don't like it, from what i gathered so far. i guess we'll hear more about that going forward. and, to be honest, gentlemen, i think it would be sheer folly, we're in middle of worst derivative crisis since country seen since the great depression, we'll create another instrument frankly public scenes that legalized gambling. i think person that votes for this would be absolutely insane. maybe i could be convinced otherwise. i look forward to the other testimony. i yield back. >> thank you, mr. berkotivz, at university of iowa, the college of business operates the iowa electronic market. while originally created as a teaching tool for students, this market is now open to non-students and includes trading in election futures from presidential races to

control of congress to individual races. small market with investors limited to $500 but it is a market nonetheless. the iowa electronic markets operates under a no action letter provided by cftc where the cftc says it will not take action against the university for offering political futures contracts on their exchange. it seems to me that elections contracts raise many of the same concerns we will hear from the next panel. what is the price discovery or hedging service contract provides? what's the ability of the industry insiders. in the case of elections that would be pollsters, consultants, media, using their knowledge to trade or manipulate these markets. what is a utility? for example, is an elected official ever going to short his own election? and granting no actual relief to the iowa electronic markets did the cftc look at these issues and why are these markets permitted? >> my understanding on the

iowa electronic markets this was originally done by, it is being done and overseen by the university of eye way as a academic and research, research, undertaking. the, there's a dollar him takes on it. it being supervised by the university. my understanding it is not-for-profit as well. under those circumstances cftc granted no action letter to enable it to operate. the questions that you've raised though in terms of the broader, beyond iowa, are questions that does concern the commission. in 2008 the commission issued what's called a concept release. sort of like, a discussion paper. federal register notice, inviting public comment on some of those very questions. what should the commission's

position be with respect to these, what they call prediction markets where you can theoretically predict the outcome of an election or other events and what should the regulatory position toward these markets be? should we have an active role in regulating like futures contracts or are they inherently different from futures contracts. we got numerous public comments on that and we're still reviewing that issue at the commission. >> any other questions for anybody on the dias? seeing none, thank you very much for sharing and we would like to excuse you, at this time and invite the other panel to take their place.

>> thank you, gentlemen. we'll go right through each of you to make your statement if we could. and, ask you to consider the five-minute rule and we'd like to hear from you. then we'll have an exchange of questions. we would like to start off with mr. jaycobs, president of cantor futures exchange, new york. mr. jaycobs. >> thank you, mr. chairman boss he will, ranking member moran and members of the subcommittee. good morning. i'm rich jaycobs president of the cantor futures

exchange. we've been developing this futures exchange for box office receipts for two years but wasn't until last four weeks we reef seed any attention at all on the subject. i welcome opportunity to alleviate concerns what we're building how it works and what benefits could be achieved through this. i like to emphasize three points about the economic purpose and integrity of futures contracts on box-office receipts. first, for the private and institutional investors who have invested up to eight to $10 billion of private money in films, futures contracts can be an important risk management tool just as they are in agriculture, energy and many other industries. movie futures will make more capital available at lower cost and as a result create american jobs. second, cantor's futures contracts are an effective pricing tool. the anticipated box-office revenue after motion picture is basis upon which many decisions and commitments are made. by establishing this exchange, a market mechanism is created to provide

independent judgment of that anticipated revenue. and it gives participants in that market and others, better information. for example, screen allocations by movie theaters, distribution terms by independent distributors, can be negotiated in the full transparency of a public price. third, as a regulated futures exchange we observe all market activity together with the national futures association and the cftc, we have proper and prudent safeguards against manipulation. cantor exchange takes issue of market integrity and transparency very seriously. our parent company, cantor fitzgerald was founded in 1945 and has extensive capital market experience. they support this committees efforts and goals for financial regulatory reform, greater transparency competition and financial clearing through financial markets. we're proud of our record as responsible market participant and caring corporate citizen in aftermath of 9/11 tragedies.

in the wake of financial crisis and debate on financial reform any new financial product leer think should come under scrutiny. since 2000 we have designated 10,000 new exchanges with 1,000 futures contracts. cftc is well-equipped to public utility of new futures contracts and to insure any proposed futures contracts meets public policy, anti-manipulation and fair competition requirements law. box-office contract will not proceed without cftc approval and legislation on this issue is not needed. mpaa said movie futures contracts are not legitimate. they create an online platform for gambling and they're susceptible to manipulation. these are inaccurate and overreaching statements. revenue generated by millions of moviegoers can determine from published reports of distributors or estimated from the electronic sales records. initially cantor intends to use the box-office in numbers released by studios. our if accuracy of studio data is appears to be manipulated we will be able

to to detect this comparing to electronically captured sales records. publicly available information enables the market to develop reliable stilts of a film's future box-office potential in fact, several commercial entities already exist who make box-office forecasts based solely on public information. mpa said futures contracts based on box-office receipts have no economic purpose. however lion's gate entertainment one of most successful film distributors not a member of mpaa said in its letter, it would substantially widen and number and breath of financing resources to available to the motion picture industry lowering the risk inherent in such financing. this is key point. six mpaa members may not appreciate value of film futures, studios, producers distributors, exhibitors and investors certainly do. many sound and commercially important regulated markets would not exist today if large entrenched interests could simply blocked their creation. community of private and institutional investors who currently finance a significant percentage of

domestic film production have no access to risk mitigation tool. they have no voice here in front of this panel today. they have no trade association that represents their interests. we believe this group alone satisfies the requirement for a group of hedgers. in closing, better transparency is a critical component after well-functioning market. futures exchanges have proven their worth bringing transparency and greater price discovery to market participants. the box-office contract is designed to accomplish that same goal. when fully implemented the market for these accounts will benefit all participants in the motion picture industry providing additional capital at lower costs. in closing what i'd like to, reference now is that injected into the regulatory reform debate in the senate of course is the language prohibiting this contract. we obviously would like to express our view that we oppose that. thank you for the opportunity. >> thank you. we'd like to recognize mr. mr. swagger, chief

executive officer, media derrytives. mr. swagger. >> thank you, chairman boswell and ranking member moran to invite us here to testify. i'm robert swagger, chairman and ceo of media derriestives. we're a small, privately-funded entrepreneural business followed the processes, and procedures, established in the commodities exchange act. in so doing has created jobs during a challenging time in the u.s. economy. as an individual who is born in the midwest, experienced the benefits of futures markets to the agricultural industry, in particular, as an entrepreneur who helped found an ethanol plant very survival was direct result of use of futures contracts, i founded mdex for purpose much creating risk management tools for the entertainment industry. note the concepts of creating such tools was direct result of my and my team's extensive involvement in the entertainment industry. we believe that the development of such products is consistent with the a major thrust of congress's enactment of the commodities

future modernization act of 2000 which sought to promote, among other thing innovation with respect to risk management tools and futures contracts. on september 25th, 2009, mdex filed its application to become a designated contract market at time of its filing it agreed to separately filed its proposed products for approval rather than self-certifying n early march 2010, amdx filed first product for review. on the eve of the expiration of cftc 180 review period and four months after the close of the comment period for the application various entertainment industry associations filed general objections. most the objections are the same objections that congress and this subcommittee in particular has heard for decades. the objections have been addressed with cftc staff throughout the rigorous review process. the objectors contended their reputation and integrity of our industry could be tarnished allowing

trading in the movie futures contracts. this is patently false. mdex has no interest in disparaging integrity of hollywood. the statements could apply every industry which a product futures contract is listed such as u.s. government and treasury futures. housing industry and housing futures. the insurance industry and weather futures. listing of aluminum futures and aluminum industry. agriculture industry and listing of corn, wheat, soybeans and other futures. motion that regulated futures contracts tarnishes an industry and is tantamount to legalized gambling is outdated and baseless. amdx is not seeking to establish opaque otc market already exists. mdx. benefits of the futures contracts such as transparency, price discovery, liquidity and centralized clearing in a regulated environment. contracts that mdx seeks to list are not dissimilar to

other futures and options contracts. the contracts allow parties with financial interest in the movie production and revenue chain to hedge the rick. such groups include, original screenplay owners, debt and equity investors, investment banks syndicating a financing slate. talent involved in the film. studios, both mpa and independents. banks and lenders, insurers of talent and movies. theaters. distributors. copromotional marketing partners. the products proposed by mdx will provide means broading financial tools available to significant segment of the economy in efficient, reliable and tested model. in designing its products mdx worked closely with the cftc staff if in the reduce likelihood of excessive regular speculation in retail use of its products. they require each contract to be fully funded. in other words there is no leverage component, thus reducing excessive speculation. at the same time, because they are fully margined an

centrally cleared by cftc-regulated clearinghouse there is no credit risk. in all material respects mdx's contracts obviate risk, they do not create it. in working with the cftc for 11 months in approving the mdx application the cftc found mdx and cf t.k. and nfa have expertise and resources necessary to conduct market surveillance with respect to futures based on movie box-office receipts. finally, critical to note that, today, on in trade you can place trade on opening weekend box-office results. market is offshore, open to the public, unregulate and employs leverage. greatest participants are u.s. citizens. the unintended consequences of the objectors efforts is likely to result in continuing to push market participants to retail, leveraged markets subject to no oversight by the cftc or congress. rather than push market participants offshore, mdx

seeks to list and clear contracts in fully regulated and transparent fashion subject to comprehensive cftc oversight and sound risk management principles. mdx thanks the committee for opportunity to participate in this hearing and answer any questions regarding the a proposed product by the mdxdcm. >> chair would like to recognize mr. pisano, president and chief operating officer, interim chief executive officer for motion picture association of america. >> thank you, chairman moran. [inaudible] this is first for me, members of the committee, thank you very much for allowing us to be here today. i'm appearing today on behalf of the six companies that are represented by the motion picture association but also on behalf of a really unprecedented coalition of members of the industry who are traditionally frankly,

warring parties. you have present at this table representatives of labor and management. representatives of exhibition and distribution, and representatives of large studios and small independent producers. to envision all of these groups together on a single issue is almost unimagineable but it is this issue that has brought us together. the second thing i would like to say i come before you as a representative of a trade association but also as someone who actually spent 25 years in the movie industry. i have been an executive at paramount, mgm. i was head of the screen actors union. in the course of my career in industry i've probably been associated with production, innocencing, distribution and marketing of well over 200 films. so i come at this from the standpoint of someone who is actually been in the industry and is deeply concerned about it. we have a way of marketing movies in the industry which we say, from the producer of,

or the director of. i'm tempted to say that this movie, this particular movie, this particular idea should be marketed as, from producers who brought you the der are riff tiff debacle. -- derivative. what i don't mean all derivatives are bad. this derivative falls in the category of synthetic fictional instruments designed solely for speculation or gambling. first point, and, congressman goodlatte made it earlier. there is no market for movie box-office receipts. in fact, movie box-office receipts reporting were created by my company in the 19 '80s as a way of marketing our movies. we wanted to say we had the number one movie of the weekend. you can't buy them. you can't sell them. and equally important, you can't take delivery of them because nobody makes them available. they're simply indication of public support. second, as congressman

goodlatte also pointed out, this is unique product. the functional equivalent of writing a commodities contract in a traditional way would be to write that contract on a cow or an ear of corn. i dare say such a contract came before the cme would be excluded. so you have these two factors. no market, no buying and selling, a unique product, and to me that gives you the potential for manipulation because the very people who are buying and selling it are who are not part of the industry, have no, stake in it and are only speculating. so that in turn raises the possibility of harm to the industry because a short position against a movie, reported on an exchange with an aura of authenticity will become a self-fulfilling prophecy. people will stay away from the pox office because the

price of the movie in the futures market has gone down. and i submit to you, that is both subject to manipulation and frankly, it is subject to hurting both the industry and the individual movie. i can speak about the injury to the industry, and my colleague, mr. harbinson will speak about the industry to the creators, the people who actually create the movie, the directors, the writers, the actors. they work on one movie and to have that subject to speculation, speculation and arbitrary trading in order to affect the outcome is something that should not be permitted. so we have no price, no market, a unique product, subject to manipulation, subject to harm. what do we have here? i submit to you we have wager, gambling, over and under betting. that's something that is more properly belongs in las vegas. no offense to las vegas and regulated by gambling laws. it should not be put with

the clothing of a commodity. so we urge the committee it urge the cftc to deny applications for contracts and we urge the committee at conference to support the amendment in the senate financial reform bill prohibiting trading in these kinds of agreements. thank you very much, mr. chairman. >> thank you. we'd like now to recognize mr. harbinson, international representative, international allyance of theatrical stage employees and directors guild of america. please. >> thank you, mr. chairman. very happy to be here. chairman boswell, and ranking member moran, appreciate this opportunity to appear before you. my name is scott harbinson and i'm international representative for the international allyance of theatrical stage employees. i'm here representing iatse and directors guild of america. i hope my presence along with others in industry will underscore the grave concern we have about the impact of

movie futures contracts which are pending before the cftc. iatse is lable bore union represents 110,000 artisans, craft persons in entertainment industry work in live theater, motion picture production and trade shows. dga represents thousands of directors, direct tomorrow films are work on scripted television, news, sports, commercials, documentries, new media both here and abroad. the realities of our business not easily deserve erred outside of it, glitz and glamour of international blockbusters give rise to misperceptions about our industry. let me begin with a few of the realities which will shed lights on our concern about the mdx and cantor future exchange applications. majority of the people working creative side of our industry earning middle class incomes do not hold a regular, full-time, monday through friday job.

ours is a freelance business. people move from one employer to another and from one production to the next. our business model recognizes and accounts for that significant uncertainty by providing another form of security to help people in between jobs, either directly or through contributions to our multiemployer health and pension plans. this takes the form of residuals come from the ploittation of our work in the secondary markets, dvd's, free and pay television and new media. not surprisingly high correlation between box-office success and downstream revenues. and hence residuals generated in these markets. the ability to trade on a film's box-office receipts through movie future exchanges, exchanges where shorting a film can be extremely lucrative puts commercial success of film at even greater risk. this new risk will not be generated by people who spend years and invested millions of dollars in

making a film. rather be generated by those who are likely to have no real stake in seeing a film succeed. their goal simply to make money for themselves. what will follow will be diminished downstream revenues. when that happens, it is our members and their health and pension contributions that suffer. additionally, the lower film revenues dampen reinvestment, which leads to decreased production, fewer jobs in the future. the image of speculators, profiteering on our industry, to the detriment of working men and women is uncomfortably familiar ring to it. the people who work on a film put a great deal of talent, craftsmenship and time, energy in making motion pictures. directors in collaboration with many other talented individuals can spend years of their lives putting a film together. studios have a slate of films each year, a director only has single film. highly impossible a director would purposely seek to undermined the work by

shorting it. almost and most directors, have no need to bet the over on their pictures because their personal service agreements generally contain provisions rewarding strong box-office performance. other talented individuals who collaborate in the making of a motion picture also have similar commitment to the final work. cinematographer, editor, production designer, just to name a few. successful film is recognition of their talent and hard work as well. with funding of their pension and health plans dependent on a picture's success they too have no reason to bet against their own work. movie making already has enormous appeal outside of the industry. to introduce this new exchange would simply encouraging mischief at best and criminal conduct at worst. not hard to envision certain people approaching individuals working on a film to try to secure potentially material, non-public information, information they would use to shape the value they assign to that movie's contracts in the future. films, both big and small

will be adversely affected by exchanges in different ways. larger productions with so much riding on them are often being worked on until the very last moment, making a especially vulnerable to a sudden blast of negative publicity. smaller films have little financial cushion and impact of rumor and negative speculation can be ruinness to these worthwhile projects. in this business there is no magic formula for success. regardless of hard work and talent involved. for every unexpected hit there is corresponding flop. that's the risk that both those who finance motion pictures and create them acknowledge, on each and every film. but at least those assuming the risk, have a bonified relationship with the work and a stake in the successful outcome of a film. those involved in the exchanges will not. in closing, we understand that the, what the existing legal standard is for establishing a futures market. but as matter of public policy if the stakeholders, large and small have no

interest in hedging the risk through a futures market which admittedly serves no price discovery function the government shouldn't sanction it. if the stakeholders have no intention participating in the futures markets, then the markets will be left to the gamblers. the cftc does not, if the cftc does not have the authority to deny the many acations to create movie futures contracts, we believe congress should act to address this issue directly. thank you for your consideration. >> thank you. we've just been notified there will be votes but we'll finish your presentation, and get into some of our questions. so just let you know what is going on. we now like to recognize mr. skyler moore. stroock and stroock, llp. >> good morning, chairman boswell and members of the committee. i'm here in my role as academic not as a partner of at stroock, stroock and

lavan i'm an adjunct professor of ucla graduate & der son business school. i'm a author of book called the biz, financing of film industry and the taxation of the film industry. plead guilty starting this entire concept in article i wrote seven years ago about this precise concept, about, structuring investment based on box-office results. it is my belief, that this is an absolutely standard, run-of-the-mill, necessary technique for film financing. it is the next step in a long evolution. and i think the first thing to, i want to just get out of the way is, every investment in film is gambling. studios gamble. investors gamble. that's the industry. we all accept that. it is legal. that's just film is gambling. so we sudden put that beyond this. second, the studios have

hedged film risk for 30 years. that is what i do as a living. coproductions. split right transactions. presales. slate financing. the last eight years alone has been over $10 billion of slate financing. and every single one is a way for the studio to get off risk and unload risk on investors. every single one. this is what the studios have done for years and years. every technique i've mentioned, coproduction, split right presale, slate financing is all to get off risk. what this exchange offers is an efficient, transparent way for the studios to get offistic when they figure it out, when they understand it they will do it and do it in droves just like they do the current slate financing in droves. same reason they did $10 billion of slate financing they will do $10 billion of these hedge financing. they always resist what's new. they resisted television. they resisted video. they revisioned video-on-demand.

new things scare people. government itself objected when interest rate swaps were first suggested and now trillion dollar a day market. so, there's a fear of something new but the truth is, this is the way the world's been working. i read an mpa submission says studios don't do it and, they to do it. that is what they do. i read one position that said they couldn't do it because they have got anti-disparagement clauses in their contracts every time they do a hedge transaction on these slate deals, they're betting against their film. this isn't new, okay? from the investor's perspective absolutely needed because there is a pullback of investment in hollywood due to fear of opaque hollywood accounting. whether it is true or not. it is image. and, you can't stop investors from investing in films. they are investing in films. you're worried about investors gambling? they're doing it now on a single film basis, on a slate basis. they're buying stocks in

film companies. they're gambling. all this does, all it does, is create an efficient, transparent, market where they can look up in the paper and figure out what their investment is worth the next day. just like they look up and see what the stock price is the next day. this is absolutely needed. it is, it will create a huge market for studios. they will come to appreciate this once they understand it. i've heard arguments against it based on manipulation. the real fear of, first of all, first comment the studios can all ignore manipulation if they don't want to be in the market. what do they care being manipulated? stay out of the market if they are in the market, only real ones could manipulate is studios, shorting their own film and, tanking it like the film, the producers, right i don't think that is going to happen. i think studios would lose more on film and goodwill on stock price than they would make by shorting their own film. i have no fear of that. other thing i've heard, oh, my god, someone will,

dr. evil will sneak into the lab and steal a print to go onto the internet and to ruin box office. that risk is so, it is, much a risk of dr. evil will put smoke bombs in theaters to put down attendance. just not realistic, right? i don't think that manipulation is a serious issue. insider trading i think is a boogaboo. there is no legal impediment on insider trading on a commodities exchange, period. or farmer wouldn't be able to trade corn futures, right? there is insider he knows his crop is bad. same thing in the industry. there's this firewall that, i frankly think they shouldn't have done. the actual reporting of box-office is self-regulating. there's an efficient mechanism in place. there shouldn't be a firewall because that gotten people off into red herring, oh, my gosh, insider trading. should be no prohibition on insided trading in my view

and certainly no legal prohibition. like to address the real reason why everyone is against this, singular focus, oh, my god, it is going to trade bad. when you look the it up, there will be bad trading. oh, my god, bad buzz about a film. no one will go to it and industry will fall apart. number one, already so much buzz about a film moment it starts production. . .

more than overall and most films better than flat so maybe that will spur attendance and turn out to be a wash so i don't think this whole bugaboo of bad films -- >> you're very much into this. [laughter] we appreciate it and i'm sure we'll have an opportunity to continue with questions so appreciate your testimony and thank you very much. i ask one quick question before we recess. i address this to our first two witnesses. if the big movie houses with stayed true to their word and refuse to participate will your contract be viable? each of you take whichever. >> [inaudible] thank you, i

apologize, i am new to this like baba. there's enormous investor class that has investments to mr. moore's comments and has investors here and that makes a legitimate market all by itself. also have the lion's gate letter which says that if not the mba man -- members the studios will participate and i was recently at a film conference with small the film producers who were enthusiastic about the concept so i think they've done a good job of bringing them together but doesn't represent the entire industry and will have successful marcus. >> thank you. >> to add to what mr. jacobs shares, notable hollywood individual one set for there is smoke there is a smoke machine and has earned it is the case here. there's a viable use for ts product and recipients looking forward to using this product. >> thank you, we are going to

recess now until the those are completed. sometimes they drag out but there are four votes, the first is a 15 minute quote and then five minutes so we will come back as soon as we can and will try to finish at that time. i apologize for the inconvenience, but like you i have no control over that. thank you very much, we will be in recess until --. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] we will call the meeting back to order and he said it was okay to commence so we will appear in the interest of time and i have a couple more questions and we will yield, but back again to our first to present jurors. mr. jacobs, how far ahead of a movie premiere will you offer the contract on that move is part receives?

>> in the case of a -- i'm still getting used -- in the kantor exchange the provision is up to a year but we expected will be six months. >> six months? >> additionally proposed product looking at four weeks. >> okay, who will be using these markets for price discovery were fortified edging, in our opinion,? >> again to reiterate my opening comments, many deals are negotiated on the base of one a box office potential will be in the amount of advertising that is justified by a film will be reflected by the expectation of that box office. there are theater screens and seats allocated and will be based on that decision so again i think event in the context of the price of soybeans or cotton is high or low there is an allocation question is a farmer uses and we see those decisions made here. if you know the box office in

advance and advertising budgets and investment decisions can be made using those prices. >> to add to what mr. jacobs shared when of the reasons starting off for the weekend product is the fact there are some in a contractual obligations tied to the success of the box office to the television satellite providers. what do they pay for that and who gets the contract? to the dvd distributors and such. there's a lot tied to the success of the box office and again the list of natural users and the screenplay honors, debt and equity owners, investment banking syndicates, the talent involved, studios, mpa and many studios, banks and lenders, insurers of talent theaters and distributors, and the marketing partners. >> thank you. you heard me asked about the

iowa electronics market in the election futures in these markets are small but they exist nonetheless and all your concerns could apply to these contracts however, our democracy has managed to survive these markets and if we could continue despite contracts were people invest like do, why are movie is more special than elections? >> [laughter] first of all, i was unaware of the i was situation and i'm biased and that has been no action letter because of its educational purpose and is part of the curriculum of the university of iowa. >> it started out that was a purpose of but let others invest in it so that's probably some other reason for the questions. >> server, first of all, betting on the outcome of elections, i think it's sort of a time honored tradition in american politics and in britain and

politics so i distinguish fact from the situation we have here which is an attempt to cloak and legitimacy of a futures market, something that's highly speculative as something that has as its base, as its index something that doesn't exist. election you know how many votes are cast ultimately win the votes are tabulated. one of the things i like to point out in terms of how the movie box office reporting works i thank you ask a question of mr. berkowitz, there are no real numbers reported and what is reported in our estimates based upon service and electronic fees from theaters and, indeed, the very tracking service that the exchange's proposed to rely on which i'm familiar with for a number of years has in his terms

of service a disclaimer in terms of the use of the information and the reliability of information because it's just that. it's an estimate and pretty accurate, but no money changes hands anywhere in the industry based on which reported in variety this and also had no money changes hands in terms of the contracts that are downstream based on was reported in variety and, indeed, those downstream contracts for example, television contracts, those are negotiated years in advance and based on film rentals which is the individual share between the theater owner and the studio when is ultimately settled out and that's never reported probably because that's personal private information between the two contracting parties. >> thank you, at this time i would like to recognize

mr. marshall. >> i was struck by your testimony, mr. more, as the chairman described, it was enthusiastic and pretty authoritative. i don't think we are confident to make this judgment. i think is something that needs to be left to the cftc and the experts within the cftc and i certainly think it's clumsy at best probably inappropriate for us to start listening to different products that aren't going to be subject to futures. what i'm interested in is general guiding principles and mention that you didn't think it was such a good idea to have the fire wall, so insider intermission no matter where it comes from is available. you don't worry that the effect of that will be to cause manipulation and inappropriate

ways and effectively undermine attractiveness of the investment from perspective of people who know doggone well that aren't going to get the insider information and know which way this thing's going to move. they will be, and they will be the john said the other end of the deal. so without a fire wall and with the presence of insider information in such a narrow her rifle shot kind of inquiry, was going to be the success of this particular venture? whether be a market at all? >> i believe there would be. i believe that the same comments could be made with respect to every market that there's people with more information and some of less and that's, in fact, the basis for capitalistic system and the basis for free-market exchange. the same could be said with respect to farmers being insiders because they know on the ground whether there is crop infections, whether there is infestation of focus or something that before --

>> your basic response would be, this is something that's been a valuable tool available to other kinds of investment decisions and make it available in either the market will take advantage or it won't. if the presence of narrowly focused insider information with regard to the end results were box office receipts concern for a particular product is a worry than the investors won't stop but the market and will figure out. >> yes i would say there's two separate issues and one is up until the release of the film and there's been confusion among the members on this issue so i'd like to be precise. as to insider trading prior to release of the film i believe strongly there should be no limits at all. that's the market deciding and i believe you want to disseminate

the information through pricing and that's the point. in particular number one of the truth is there are no secrets in hollywood and the moment a film has some trouble with it is instantly on the blogs and instantly in the trades. second, the truth is nobody knows anything, nobody knows what the box office will do and many top executives at the studio have all the inside information in the world and are often wildly wrong on whether a film will flop or not. there's an those countless examples of films that have locked people thought would be used and vice versa. no one predicted paranormal activity, $200,000 fell, during as big as it was so to that latigo. >> for these products essentially available in the otc market and offshore? >> yes, they are. >> rather robustly traded? >> i don't know, there's a company called in trade offshore that is unregulated and not governed by u.s. betting going

on now. >> mr. jaycobs and mr. swaggart, the otc market, are there swaps and derivatives that do it eventually to which are on the regulator markets? >> i don't draw the comparison closely with in trade and i think the statements made earlier are consistent with hedging happening now by transfer of risk to the securities market and not to the futures markets. that's the mechanism we have seen. >> i completely agree with and the notion that within not use this hedge quite honestly and our work directly with constituents at this mpa not only interested in this initial product but interested working on the development of different products that would meet economic needs they have. to collect data, it wasn't available fibre six years ago in the form it is today and i think if there's a concern about the value of that data being collected that that's a greater

concern than in the otc regulation. we free our understanding from mr. pisano the mpa says and manipulate data put and reports for large corporate conglomerate that owns studios that would be a great concern. >> thank you mr. chairman. >> thank you, the chair recognizes mr. moran. >> mr. chairman, thank you. i think it was mr. jaycobs talk about cftc and the public utility of this exchange and yet we for the general counsel talk about that's not one of the criteria in which the cftc looks at so i want to explore with you and others on the panel was the public utility and benefits of this exchange in this kind of product? >> i think it's twofold. there's what we call in this industry the price discovery function but what others would say is what's the box office going to generate from economic

value point of view. as we've heard here, many decisions are made on whether that box office is going to be strong or weak or whether you take the risk of not and its investment decisions made by individuals and advance, knowing what films would be produced with the money invested. the screen allocations, it's the budgets for advertising. there are in number of business decisions that are being linked to that box office value. >> i assume then the theory would be that those -- that the market would become much more efficient and investment decisions, location of theaters, decisions made based upon more information? >> that's right. if you have a plea important information that can be acted on in financial transaction so not only have an opinion about the value but take action to ensure that value. you put those two together and in every other instance where we have futures markets has been

great benefit to the underlying industry. >> mr. pisano, do you have a counter argument to that point? >> as i said earlier, mr. moran, nothing in the movie business today is linked to the reports of a box offices. as i said how those are simply estimates we release of our studios release and others principally for marketing purposes. they aren't reported in this financial statements of the companies, not to the cftc, they are estimates based on their brand track system. in addition, and no one that i know that i've been in this business for 25 years makes a decision as to how much money we are going to spend on a movie or how many screens is going to get booked. based on some artificial estimate of what the box office will be. based on a futures traded. and so there's an unreality to

this market, not a link in any way to have a business actually works and that's to me part of a hub the danger of of this proposal and that what it really does is invite speculation. in addition, according to the phone books sides of rules that to these changes published, the very people that would have some information and might be able to rely on it are firewall are prohibited from acting on it. so to put it in its simplest terms what we have is a market in search of a product that the people who actually participate in the industry don't want but perversely is going to impose liability reporting and regulatory responsibilities that we don't want and don't currently have an even questionably whether the law as written today has the power to impose its on the motion picture producers and distributors.

>> mr. moore, i assume you have observation about both of those answers. in addition i wanted to ask a question about increase or decrease investment in the movie industry. i thank you indicated as a result of this additional transparency information that we would see an increase in investment and i want you to exploit that but also if someone could walk me through -- you have supposedly some investor in kansas who wants to invest a hundred thousand in making a movie, how would this help him or her effort to make that investment decision? >> [inaudible] i can tell you all this together and answer that perfect question. i guarantee you that there will be an enormous flood of financing and to the industry for the studios to create jobs for mr. harbinson to create jobs for the gills and read more film production if there's an exchange that permits trading based on box office results

because number one, if you tell me the box office results of the film i can tell you with statistical certainty what the total income to the studio will be from dvd tv because there's a correlation between box office and the other revenue but i was a two your investor in kansas right now have a choice to put $100,000 down and invest in particular film or could invest in the slate -- latest films and look at you and say in exchange for what and the answer you give as net profits. net profits is a very opaque accounting term and hollywood with a lot of ambiguity and litigation behind it and a lot of uncertainty and that uncertainty holds back investments. that's when holds back investors. if you're an investor in kansas can hedge the risk in a way they can know with certainty that if the box office was backs and look up in the paper and know what they have learned the next day with certainty they would have that much more comfort and would become free of the fear of

hollywood accounting and there would be a flood of funds and financing for the market. i represent and this is what i do for living and i've had talks with my private equity funds to fly and that -- flood this with financing and there was a hedging opportunity available that could protect themself. they've told me this and hundreds of millions of dollars -- there's no question about it. >> thank you mr. chairman. >> welcome, mr. kessel, questions? >> thank-you mr. chairman mr. jaycobs, i'm probably going to repeat some of the questions already asked am trying to kind of understand this. i agree with mr. marshall that this is well interesting to hear your comments and your positions this seems to be a decision best left to the cftc and their expertise of understanding this had much greater levels than i

would, but mr. jaycobs, why do you want to invest and sit this market. these guys don't seem to want you. why not take your money summer else? >> kantor has had a tenured commitment to financing vehicles than the entertainment business problems begin so this is part of that. we think that very much to the professor's comments we think is the transparency and a public marketplace that enables us to do financing of films. without that we are trying to great investment under the cloak of the market or evaluations are determined arguably mr. pisano organization as they assess what forms are not a valuable so we think having a public transport marketplace is a predicate to doing all forms of other investments and in that sense i agree with the professors. >> mr. pisano, i know we've talked about this but why don't you want your help? is seen to have money and equity

would seem to be something that will leverage your investments. why don't you want the help? >> speaking just for my members, we have perfectly adequate tools to finance our motion pictures and all those tools have been discussed so i won't go into it. quote we don't want to do is to participate in a highly speculative, and real, basically gambling casino effort to raise money that's not good for our industry and our companies and as mr. harbinson said it's not good for the creators involved in the picture individually. and so while one can postulate their radically that new financing opportunities are a good thing, i think they are a bad thing when like the synthetic travis that have driven down and basically almost destroyed the financial structure. this is nothing more than

synthetics speculation. i'm perfectly happy to have people make money who are speculators, but there has to be broad economic purpose and we simply don't see that here. but we do see opportunity for abuse, manipulation and the kind of financial chicanery that's gone on in this country for the last five years and that's why we are opposed to it. >> thank you, gentlemen, for your patience while loading and thank you for being here. mr. chairman, i yield back. >> thank you, mr. marshall, another question? >> mr. moore, you alluded to reasons why mpaa would have this credits facilitating available. you say the effect of this would be to enhance dramatically the amount -- amount of investment to fund a film so hands it would be boom times in the film

industry. besides just saying they are wrong in their evaluation of this which you clearly think they are, are there things about how mpaa has disruptions with this and some sort of vested interest in protecting that she could perceive and share with us? >> no, i really do believe it's simply the fear of bad tracking and the fear that will lower attendance to a film and it's a fairly myopic view without taking into account there's going to be good tracking that will increase attendance and it is kind of ignoring all the other benefits. i also think it's the fear of what's new and it's been historical trade of a the mpaa and the studios and they would ultimately come to embrace this. >> so you don't see any attempt to fend the turf that exists right now, those sorts of things that are concerns that come up

with new products offered? >> i don't think so. >> mr. jaycobs, mr. swagger? >> i can only rely on the comments speeeight -- mr. pisano made and the major studios don't need this. they have financing and deep corporate pockets standing behind them. i would point out that they have a close to several vantage miramax closed and the distribution small films underneath bigger studios. and if you have a public marketplace that creates better public financing independent folks we talked to, lions gate is example but goes down to production companies, will have the ability to get access to funds that right now for the most part can come only from the mpaa and members. >> mr. swagger? >> i'm sorry, could you repeat the question? >> it's the same question, i am

just wondering in your opinions, mr. moore, mr. swagger, mr. jaycobs, you are in favor of making this credit facility available. is there something that you perceive mpaa tried to protect, existing order of things that would be disrupted and that explains why mpaa would be concerned. mr. moore says no, he thinks is legitimate worry about what would happen to the prediction of success or failure where a movie dose. the existing order would prefer to leave that to critics and whatever else is presently around and not add yet another thing speculating on success or failure. mr. jaycobs suggests there's a little more to it. that mpaa would be perfectly happy with existing order of things since financing is available for its but not for the smaller ventures. this would free more financing for the smaller ventures. >> i would agree with that

statement. if there's action taken to prevent these products the action is really saying there are six studios we want to protect and don't want to protect the rest of the jobs -- the rest of the talent out there. we have great people on our board involved with film financing and this is certainly a move, indeed, in the constituency of mpaa are all supporting this. what we've learned in directly working with the constituents they are open to not only this product but others so i would dispute mr. pisano statement they're all opposed to this direct conflict of what our experience has been. >> in fairness, mr. pisano. >> i appreciate that, i was speaking on behalf of the mpaa member companies but we have in record already a statement from the independent film and television producers' association which represents 150 in the pen of producers of film and television. in fact, in terms of that

organization that's probably the majority, the majority of the films produced every year. by their members and they are opposed to all the reasons which they set out in their filing and i won't repeat them so is just not the six studios who are opposing this. to stay independent film association representatives opposing also for the very reasons set forth. >> mr. harbinson? >> i am little different than the rest of the panelists, some are working to represent working men and women sell ivory a different perspective to this. but from a perspective of the people i represent, it looks very much like wall street guys are trying to do from the motion picture industry what they did for the real-estate mortgage banking industry and we don't want it. we don't want any part, it's been very well articulated by

the mpaa and articulated by us and articulated by the independent producers. and i am hoping that to the committee sees it that way and realizes what all this is a, it's gambling for a select few to make money at the expense of those of us to make motion pictures. ..

>> and there's a number of other companies that are on the verge of bankruptcy and it came industry. they need financing. this is a viable efficient transparent approach to bringing substantial financing to hollywood. it will help the union. it will help the studios. >> thank you, mr. chairman, for your indulgence. >> any questions do? yes, mr. chairman. let me acknowledge at the outset, i know nothing about the most picture industry or how it is financed. i have been interested in the concept of the futures trading,

relative to potentially assisting it adding security to the investing highly risky investing motion pictures. to me, it seems like this could work very nicely. you have basically a hedge. you put it out there, and you'd basically be able to put a block on your downside exposure. and that this technique could bring more investors to the party, because they are going to have a position that they can't secure, they know their risk is unlimited. mr. harbinson, i guess i would direct this one to you. it seems to me like more participation in the investing in movies would be to the interest of your members. and yet you've taken a position

against this bill. have you evaluated whether or not this might be a means to get more investing, and, therefore, more opportunity? indeed more independent? i have a theory, utterly baseless other than my own conjecture, that possibly some of the opposition from the motion picture association because they are the base. and if you got a backstop on risk, you have more potential investing, you're going to maybe have more little ones. and that's more competitive. but for your members, it might be more work. that's puzzling in this issue. i would like a response on behalf of your members and maybe toss around a bit. >> i will answer you as best i can. like i said, you know, i'm a union representative, and my normal baby which is negotiating, forcing collective bargaining agreements. and that sort of thing. so this is all kind of new to

me. i'm trying to get up to speed as best i can. i think that our fundamental objection is, you know, we are practical people. if it looks like a duck and quacks like a duck, it's a duck. it looks like gambling, it smells like gambling, it's gambling. we don't want to be, and you're right. mr. moore was right. you know, the industry has suffered, and it has suffered as a result of the financial crisis that is now being dealt with. it may come as a surprise but we don't have great confidence in wall street to create new wonderful things for our industry. particularly when receiving -- we seek just a verbal a motion picture success can be. we are concerned about the process being corrupted. were concerned about the process

being manipulated. we have grave great concerns over that. would we like more work, yes, sir. >> i hear and i think there could probably be a worse time to consider, you know, a new realm of futures trading. in light of the abuse that has taken place in this whole arena. on the other hand, it has long served a useful risk management role in the marketplace, for lots of things, that are otherwise hard to evaluate risk and how you price risk protection. so you do it basically and an open exchange traded way. the marketplace determines it how you reach a valuation, was a valuation in place. i'd like to hear from mr. jaycobs. i see my time is up, or just about a. i have about a minute left.

to bring your perspective on to my conjecture. >> yeah. that's exactly, that's excitedly argue, is history am a this would be the only case in history where that result was not achieved. and, you know, we have great appreciation for mr. harbinson's guild and the other guilds or the decline in production has been dramatic. studios have shifted their production to blockbuster tie pictures, a way as i just mentioned, away from the smaller films. and also had, i had the pleasure to meet folks and we had an opportunity to present our side of the story. up to that point we hadn't. the folks of the directors guild explained to us, a very simple concept. if we believe that this will raise more money and there's good arguments for the industry and good arguments in that direction, we would have to be convinced that there was not a reputational risk that, because the market was sold off,

unfairly, that that reputational risk would look bad for our people. and i fully understand that and i think that's what the cftc's role is so important here, is we have to make sure for the investors that are in the market, for the creative people involved in the process, we have to make sure there is a level playing field for the entire market. cftc is expert in the role and we trust their judgment and working with us to come up with the part that will achieve greater good. >> i did think the reputational risk is interesting element, and again, not having a backer in any industry i thought the point made by both was interesting. that she would have basically "wall street journal" coverage of the first weekend box office, the short hit, and terms of the futures and basically you've got the structure of the picture infused market place that it would compound already expressed by a weak opening box office or

critical reviews so i understand that. i don't know that's trumpeted bill of the question whether not accused to backstop risk in u.s. producer was. and we will continue to reflect on a. one question maybe, this is a quickie. as we look at futures and exchange trading, do we sort through the many facets of our economy and say, well, futures trade this one, you can't futures trade this one, you can futures trade but you can't, you know what i mean? is this a common approach? as a member of the ag committee now for many years, i've not seen legislation that would identify an industry and said you can't do it for this one. sure. >> i think rich can add to this as well.

from our perspective no new exchanges can start and be successful unless they're into a new product market. constituentsof the mpa, they are asking if we would do slate financg e chage