Want to short Toy Story 3, Karate Kid 2010? Now, investors can place bets on movies

A new futures exchange that will let investors bet on contracts tied to soon-to-be-released movies is making its home in Chicago.

Trend Exchange aims to open trading on the contracts by midyear, allowing investors to wager on whether movies will be a hit or a flop based on box-office receipts, said Robert Swagger, CEO of Veriana Networks LLC, the venture capital group backing and building the exchange.

Mr. Swagger expects the Commodity Futures Trading Commission to approve the exchange’s application for operation on March 24. In the meantime, he’s building its technology platform and partnerships, he said.

Despite its Hollywood focus, the exchange put its operations and 22 employees in Chicago because of the expertise that has grown up around the city’s other big exchanges, Mr. Swagger said.

For instance, Mr. Swagger recruited Patrick Catania, a 40-year Chicago Board of Trade veteran, to serve as a consultant.

Mr. Catania, who was executive vice president of business development, marketing and research before he left the CBOT in 2002, said he believes the exchange might entice more capital to the film-making industry at a time when investors have become jittery about investing in movies.

“I was very interested, because this is an area that has been totally unserved with regard to risk management,” Mr. Catania said. “There’s definitely a need for the folks that put up all that money to try to protect their money.”

Mr. Swagger expects the exchange to attract movie studios, theater operators, major banks that invest in film production and other financing companies that specialize in the area.

The exchange will clear the contracts through the Minneapolis Grain Exchange, so would-be investors will have to work with that exchange’s futures commission merchants or become a merchant there to buy or sell the contracts, which will have a value pegged to box-office receipts. The investors will be able to hold short or long positions and bet on between 12 and 16 movies in the weeks before the movies are released.

The Trend Exchange won’t be without rivals. New York-based Cantor Fitzgerald LP is also in the process of seeking regulatory approval from the CFTC for a movie futures exchange. That exchange — the Cantor Exchange — expects investors will be able to buy or sell contracts on its www.cantorexchange.com website starting in April.

[This story first appeared in Crain’s Chicago Business, a sister publication of InvestmentNews.]