The US Commodity Future Trading Commission sought comments on Dec. 11 about proposed rules which would extend its enforcement to markets which are currently exempt. The proposal would implement provisions which Congress passed as part of the Farm Bill earlier this year, the CFTC said.
Exempt Commercial Markets, or ECMs, were created under the 2000 Commodity Futures Modernization Act to differentiate platforms where institutions and others trade energy swaps and other financial vehicles from regulated exchanges. The 2008 CFTC Reauthorization Act, which was included in the Farm Bill, expands the commission's regulatory authority by creating a new regulatory category (ECMs with significant price discovery contracts, or SPDCs) and subjecting them to additional regulatory requirements, according to the CFTC.
"The proposed rules provide the commission with a clear window and robust tools to oversee these exempt commodity swap markets, allowing the commission to better protect the integrity of the price discovery function of regulated futures exchanges," CFTC Acting Chairman Walter L. Lukken said.
"Oversight of ECMs was the first I pursued after becoming acting chairman in June 2007, and these proposed rules are a culmination of the hard work of many here at the commission and in Congress over the last 18 months," he continued. Lukken has announced that he does not plan to remain at the CFTC beyond Jan. 20.
The proposed rules, which are scheduled to appear in the Dec. 12 Federal Register, would revise information submission requirements applicable to ECMs, establish procedures and standards by which the CFTC would determine that an ECM contract performs a significant price discovery function, provide guidance with respect to compliance with nine core principles for ECMs with SPDCs, and amend existing regulations applicable to registered entities in order to clarify that such regulations now apply to ECMs with SPDCs, according to the commission.
Comments will be accepted through Feb. 11, it indicated.
US Senate Agriculture, Nutrition and Forestry Committee Chairman Thomas Harkin (D-Iowa) introduced legislation on Nov. 20 to reform the trading of swaps and other over-the-counter financial derivatives. He said that his bill would specifically amend the Commodities Exchange Act to eliminate the distinction between "excluded" and "exempt" commodities on one hand and regulated commodities on the other. Essentially, all contracts for futures, options and other commodities would be treated the same, he said.
The bill also would eliminate the statutory exclusion of swap transactions and end the CFTC's authority to exempt such transactions from the general requirement tat a contract for purchase or sale of a commodity for future delivery can trade only on a regulated board of trade, according to Harkin. Virtually all contracts which now are commonly referred to as swaps would fall under the definition of futures contracts and function in the same basic manner, he said.
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