May 19, 2010
Last month the Commission approved the applications of Media Derivatives, Inc. (MDEX) and Cantor Futures Exchange L.P. (Cantor) to become designated contract markets (DCMs), conditioned on a requirement that the exchanges submit all new classes or categories of media related contracts for approval instead of using the self certification process. We imposed this condition due to concerns regarding the nature of the contracts MDEX and Cantor initially intended to list for trading, which are based on motion picture box office receipts. There are a number of questions I have regarding whether these contracts can serve as a useful hedging tool, how they will be settled and whether they are susceptible to manipulation. As I stated in my concurrence to the Commission’s approval of the Cantor application, I also have an overarching concern as to whether the contracts these DCMs intend to list for trading raise broader policy issues related to information aggregation markets.
Two years ago the Commission published a Concept Release seeking comment on the appropriate regulatory treatment of financial agreements offered by markets commonly referred to as event, prediction, or information markets. Commission staff has received numerous requests over the years for guidance on the types of contracts that should be allowed in this category. Unfortunately, the Commission has not yet established a framework for resolving this issue. I would prefer that the Commission address the broad policy issues raised in the Concept Release rather than approving or rejecting requests to establish information markets on an ad hoc basis, which is where we find ourselves now.
That being said, our governing statute and regulations require us to act on requests for approval of contracts within a specified timeframe. The deadlines for the MDEX and Cantor contracts are fast approaching. Section 5c(c) of the Commodity Exchange Act mandates that we approve these contracts unless we find they violate the Act. We have no discretion in this regard. Based on the record developed thus far, I do not yet know the answer to this question. Hopefully, the information we gather today will assist us in making an appropriate determination. I thank the panelists for appearing today and look forward to their testimony.
Last Updated: June 14, 2010