Now, you may know Edward Regan Murphy (April 3, 1961) by another name. The actor, comedian, writer, producer, and singer also known as Eddie Murphy rose to fame on Saturday Night Live before making the switch to movies. Not exactly somebody who you would expect to have his name attached to some far-reaching financial reform because of only their second ever movie. However Trading Places was the catalyst for just that. So what happened?
Duke & Duke
A contemporary spin on the Pygmalion myth, Trading Places is simply one of the finest comedies ever made. The perfect cast riff off each other effortlessly as the movie heads towards an expertly staged climax on the trading floor of the New York stock exchange. The writers, Herschel Weingrod and Timothy Harris, knew that the finale would be confusing to observers but they went to extra lengths to make it as accurate as possible, having intently studied the commodities market and consulted traders.
They decided that while financial victory could be confusing, if they got it right the audiences would be too invested in the characters’ success to care about the finer details.
For years, there have been many different versions put forward as to what actually happens in the finale. Many an amateur Warren Buffet has held court in many bars explaining it to his less financially gifted bretheren. Most of the time they are wrong.
Louis Winthorpe (Dan Aykroyd) and Billy Ray Valentine (Eddie Murphy) get rich, and the Duke brothers lose all their money. But what actually happens? This is the official version agreed on by commodities traders.
Clarence Beeks is tasked with getting hold of an advance copy of a government report on the orange crop. Winthorpe and Valentine intercept the crop report before the Duke brothers see it. The report says the orange crop is strong, so the price of OJ could be reasonably expected to fall.
They substitute the report with a fake one, saying the crop was bad, so scarcity would cause the price to rise. This means the Duke brothers have bad information.
So far, so clear?
Based on this information the Duke brothers tell their trader to buy orange juice futures. A “future” is basically a contract for assets – especially commodities or shares – bought at agreed prices but delivered and paid for later. The Duke’s instructions are to keep buying and buying no matter how high the price goes, as they expect the crop report publication to push it up even further.
When everybody else sees the Duke’s buying, they want in on the action thinking they know something, so they all jump in and push the price up even higher. There is a buying frenzy.
Then comes the key moment. When the price hits the level Winthorpe thinks he needs, he yells:
“Sell 30 April at 142!”
This means he has just declared he is selling these future contracts to receive OJ in April at $1.42 per pound. 30 means he is selling 30 contracts. One contract would be thousands of pounds of OJ.
Based on what they think the Dukes know, the other traders all pile in and agree to buy from them at $1.42, thinking the price will be way, way higher in April. The Duke’s trader also piles in. The price rises.
Then the secretary of agriculture announces on TV that the orange crop is fine, exactly the opposite of what the Duke’s and, by extension, the rest of the market expected. The price of OJ is not going to the moon. It’s going to fall, and they all need to offload their contracts fast. The price plummets as they dump and exit their positions. When the price hits 29 cents a pound, Winthorpe and Valentine start agreeing to buy orange juice in April.
So effectively they have binding contracts in place to buy millions of pounds of frozen concentrate of OJ in April at just 29 cents a pound, and also contracts in place to sell it straight away again for $1.42 per pound.
They sold high and bought low. The tricked Dukes did the exact opposite and are now ruined.
The Eddie Murphy Rule
But wait, some of you are thinking. That’s using privileged information and is insider trading? Well, yes it is! The financial markets were very, very different back in 1983.
Back then, trading commodities on inside information obtained from the government wasn’t actually illegal.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in 2010 after years of wrangling. Before this act was passed, the Trading Places protagonists were not breaking the law regarding using the information in the report to their advantage before it was made public. Dodd-Frank said you could not use “nonpublic information misappropriated from a government source.”
The law is 849 pages long and this part – Section 746 – is now commonly known as the Eddie Murphy Rule.
The then CFTC chief Gary Gensler had to keep a straight face when he actually told Congress during testimony:
“We have recommended banning using misappropriated government information to trade in the commodity markets. In the movie Trading Places, starring Eddie Murphy, the Duke brothers intended to profit from trades in frozen concentrated orange juice futures contracts using an illicitly obtained and not yet public Department of Agriculture orange crop report.
Characters played by Eddie Murphy and Dan Aykroyd intercept the misappropriated report and trade on it to profit and ruin the Duke brothers. In real life, using such misappropriated government information actually is not illegal under our statute. To protect our markets, we have recommended what we call the “Eddie Murphy” rule to ban insider trading using nonpublic information misappropriated from a government source.”
It’s OK though. Until somebody passes a Weird Science provision, you can keep on doing that thing you do. Just don’t talk openly about it, as it’s a bit grim.
Like our articles on the history of Hollywood? Previously we have looked at the insanity of 1989 and The Summer Of The Bat, as Batmania swept the globe. Then we linked that to a follow–up piece looking at the sequel that went wrong – Batman Returns.
Before that we have looked at such varied aspects of Hollywood as the hidden story behind George Lazenby’s decision to only play 007 once. We have looked at the history of stunts, of special effects, of the studio system, and explored Hollywood’s ties to the mob. We have also examined some of the spooky goings-on associated with Tinseltown and we told the story of one of the true giants of Hollywood. We delved into the backstory of one of the best-known names in the history of horror, Hammer. We took a walk through the history of one of cinema’s greatest art forms – the world of miniatures and model-making for movies.
We explored the history of the box that changed so many Outposters lives – the VCR. We even delved into the murky waters of movie money and the hidden world of Hollywood Accounting and we went deep into genre with a history of disaster movies. Uncover the mystery and the horror surrounding a little known on-set incident during the making of Shark!
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