Dissent of 

Commissioner Jill E. Sommers 

from 

Approval of Media Derivatives Exchange’s Opening Weekend Motion 

Picture Revenue Futures and Binary Option Contracts 

June 14, 2010 

I respectfully dissent from the Commission’s action taken today to approve Media 

Derivatives Exchange’s (MDEX) Opening Weekend Motion Picture Revenue futures 

and binary option contracts on the motion picture Takers, submitted for Commission 

approval on March 9, 2010 pursuant to Section 5c(c)(2) of the Commodity Exchange 

Act (CEA or Act) and Commission Regulation 40.3. 

When considering whether to approve a contract submitted to the Commission for prior 

approval pursuant to Section 5c(c)(2) of the Act, the Commission is guided by Section 

5c(c)(3) of the Act, which provides that “The Commission shall approve any such new 

contract . . . unless the Commission finds that the new contract . . . would violate this 

Act.” In addition, Commission Regulation 40.3(d), “Notice of non-approval,” authorizes 

the Commission, at any time during its review of a new contract, to notify the requestor 

that the Commission “[w]ill not, or is unable to, approve the product or instrument.” In 

this regard, Regulation 40.3(d) requires the Commission to “[b]riefly specify the nature 

of the issues raised and the specific provision of the Act or regulations, including the 

form or content requirements of paragraph (a) of this section, that the product would 

violate, appears to violate or the violation of which cannot be ascertained from the 

submission.” 

Section 2(a)(1)(A) of the Act states that the Commission has exclusive jurisdiction over 

transactions “involving contracts of sale of a commodity for future delivery.” As such, 

the first step in the analysis of any contract submitted for prior approval (or any contract 

self-certified pursuant to Section 5c(c)(1) of the Act for that matter) is whether the 

contract is actually a sale of a commodity, as defined by the Act. 

Section1(a)(4) of the Act, in relevant part, defines a commodity as “all other goods and 

articles . . . and all services, rights, and interests in which contracts for future delivery 

are presently or in the future dealt in.” 

 

While the definition of “commodity” is rather broad, it is not without limits. The 

Statement of the Commission does not appear to recognize a limit to that definition. 

Moreover, the Statement of the Commission specifically states that motion picture box 

office receipts are a “right or interest” within the meaning of Section 1(a)(4) of the Act, 
and are therefore a commodity. Analysis presented to the Commission during this 

contract review process concerning whether opening weekend box office revenues are 

a “right or interest” and therefore a “commodity,” recognized that motion picture 

revenues are not rights, and do not cleanly fit within the common definition of an 

interest. The analysis went on to indicate that determining that motion picture revenues 

were an interest was not problematic because the Commission has previously approved 

futures contracts on measures and values that did not neatly fit within the common 

definition of goods, articles, services, rights, or interests. 

As regulators, we are required to apply the Act and Commission Regulations to the 

contracts MDEX submitted to the Commission for approval. In applying the Act and 

Regulations, where that which underlies a contract does not neatly or cleanly fit within 

the definition of a “commodity,” the Commission should carefully exercise its judgment 

in determining whether or not the underlying is, in fact, a commodity. Carefully 

exercising that judgment involves drawing lines. Invariably, when drawing lines, some 

things will end up on one side of the line, and some will end up on the other. 

I believe that including motion picture box office revenues as “rights or interests” that fall 

within the definition of “commodity” contained in Section 1(a)(4) of the Act crosses a line 

that should not be crossed. On May 7, 2008, the Commission published a “Concept 

Release on the Appropriate Regulatory Treatment of Event Contracts” (73 FR 25669). 

In that release, the Commission recognized that it was evaluating whether or not event 

contracts fall within the Commission’s jurisdiction. Staff indicated in the release that 

since 2005, they have received a substantial number of requests for guidance on the 

propriety of offering and trading financial agreements that may primarily function as 

information aggregation vehicles. Staff also acknowledged “substantive and practical 

concerns that may arise from applying federal regulation to event contracts and 

markets.” It was in that context that the Commission in 2008 believed there should be 

definitive guidelines for these types of novel futures contracts. Unfortunately, the 

Commission has not yet acted to promulgate definitions or guidance for these markets 

which could provide meaning to the term “event” under the Act. 

When the Commission approved the MDEX application for designation as a Designated 

Contract Market, I wrote a separate concurring statement wherein I stated, “The broad 

policy issues discussed in the Concept Release may be raised by the types of contracts 

[MDEX] intend[s] to list for trading. I believe it preferable for the Commission to address 

the broad policy issues raised in the Concept Release, and establish some framework 

for responding to those issues, in lieu of merely responding to individual petitions for 

market designation or contract approval as they happen to be submitted.” That is still 

my belief. 

There are a number of questions which I believe have never been answered and 

although staff has recommended approval of these particular MDEX Opening Weekend 

Motion Picture Revenue futures and binary options contracts, it is unclear to me how 

they fit into our current regulatory structure.