Congress considers initiatives aimed at giving C.F.T.C. more manpower, muscle

by Jay Sjerven
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WASHINGTON — Before breaking for the Independence Day recess, the House of Representatives passed by a vote of 402 to 19 the Energy Markets Emergency Act of 2008 requiring the Commodity Futures Trading Commission (C.F.T.C.) to use its existing powers and authority, including emergency powers, to curb excessive speculation in the energy futures markets. The lopsided vote testified to the fact no new authorities were conferred on the C.F.T.C. but also reflected strong support in Congress for more assertive federal oversight of the energy markets.

Immediately after the Independence Day recess, the House Committee on Agriculture will discuss more far-reaching bills addressing concerns over possible manipulation of energy markets by speculators, and the Senate will consider its own legislative proposals to increase market transparency and provide for more robust C.F.T.C. oversight. While the bills target the energy markets, many of the same worries over the effects of excessive speculation and lack of transparency of index and hedge fund trading activities were voiced by commercial participants in the agricultural commodity markets.

"A growing number of people believe a flood of speculative money into energy futures is driving the record prices of crude oil," said Representative Collin C. Peterson of Minnesota and chairman of the House Committee on Agriculture, which exercises oversight of the C.F.T.C. "C.F.T.C. must take immediate steps to ensure that index and hedge fund money is not the cause for price manipulation and should take any necessary action to curb excessive speculation in the markets. These steps will help restore consumer confidence and reassure the American taxpayer that the futures markets are functioning properly."

Mr. Peterson noted other bills affecting regulation of the energy futures and swaps markets have been introduced and referred to the committee.

"The committee will thoroughly and carefully examine legislative proposals that would affect regulation of these markets," Mr. Peterson said.

One of the bills to be discussed was introduced by Representative Bob Etheridge of North Carolina, chairman of the subcommittee on general farm commodities and risk management. The Increasing Transparency and Accountability in Oil Prices Act of 2008 would authorize the hiring of 100 additional full-time employees at the C.F.T.C. Mr. Etheridge noted since 2000, trading on commodity markets increased six-fold while staffing at the C.F.T.C. declined to its lowest levels in the agency’s 33-year history. The bill would direct the C.F.T.C. to hold overseas markets accountable for their practices when U.S. energy commodities are traded on them, ensuring such foreign markets have similar disclosure requirements and position limits and accountability levels as are required of domestic markets.

The measure thereby addressed the "London loophole," which refers to the trading of energy commodities deliverable in the U.S. on the Intercontinental Exchange in London. The bill further aimed at providing more market transparency by requiring the C.F.T.C. to change its reporting of traders to more clearly show what position and how much influence investment funds and swap dealers have in energy markets.

Another bill referred to the agriculture committee, H.R. 6330, the Prevent Unfair Manipulation of Prices Act, was introduced by Representative Bart Stupak of Michigan, chairman of the House Committee on Energy and Commerce subcommittee on oversight and investigations. The bill has 59 cosponsors and is more far-reaching than the Etheridge bill. The bill would eliminate the current exemption from C.F.T.C. regulation for over-the-counter energy commodities. It, too, would extend U.S. regulation to foreign exchanges trading energy futures that provide for delivery in the U.S. The C.F.T.C. would be required under the legislation to set aggregate position limits for individual traders covering total trades in all markets. The bill would extend C.F.T.C. regulatory control to swaps involving energy transactions. It also would clarify that energy swaps not backed by physical commodities will no longer be eligible for exemptions as bona-fide hedges for energy transactions.

In the Senate, Senator Dick Durbin of Illinois introduced the Increasing Transparency and Accountability in Oil Prices Act of 2008. Mr. Durbin’s bill has 19 cosponsors, including Senator Harry Reid of Nevada, the Senate majority leader. In addition to provisions specifically addressing the energy markets similar to those in the Etheridge and Stupak bills in the House, the Durbin bill includes provisions that would direct the C.F.T.C. to require more detailed reporting by index funds, swap dealers and foreign exchanges that trade on U.S. exchanges, including agricultural markets, within 60 days of enactment. The bill also would establish an independent office of inspector general at the C.F.T.C. Like the Etheridge bill in the House, the Durbin bill would authorize the C.F.T.C. to hire an additional 100 full-time employees to enhance the agency’s oversight of energy markets.

"While gas prices climb every day, the understaffed and underfunded C.F.T.C. is virtually powerless to stop it," Mr. Durbin said. "We need to give the agency in charge of investigating and regulating the oil market the resources and authority they need to do their job effectively. At this point, we simply don’t know what role speculation or manipulation is playing in price increases, and with a market that is producing $4 or $5 gallons of gas, we simply can’t waste any more time before getting to the bottom of this."

This article can also be found in the digital edition of Food Business News, July 8, 2008, starting on Page 1. Click here to search that archive.

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