July 28: The US Commodity Futures Trading Commission will hold the first of three public hearings on possible position limits and exemptions from them in energy markets at its headquarters at 1155 21st Street, NW, from 9 a.m. to 1 p.m.
US Rep. Bart Stupak (D-Mich.), who has sponsored legislation to reform federal commodities regulation, will speak first, followed by CFTC staff presentations and two panels with witnesses from regulated exchanges, the Futures Industry Association, and industries which use commodity hedges to manage their prices. They include Laura Campbell, from the American Public Gas Association, and Sean Cota, representing the Petroleum Marketers Association of America.
Why it matters: While it looks as if congressional committees won’t tackle commodities regulation reform proposals until September, the CFTC is moving ahead as it considers whether to establish position limits for energy commodities. PMAA supports more regulation because it believes hedge funds, investment bankers and other major market participants used loopholes in the existing law to drive crude oil prices to record highs last year. Oil and gas producers are concerned that much more regulation will destroy their ability to hedge prices and establish cash flows which are stable enough for them to manage their operations and secure new financing.
APGA, which represents municipally and publicly-owned natural gas utilities, expressed similar concerns on July 21 in a letter to US Treasury Secretary Timothy F. Geithner, leaders of congressional committees with jurisdiction over commodities, and members of the CFTC including Chairman Gary G. Gensler. The group is particularly concerned with proposals in Congress which would mandate the clearing of all over-the-counter (OTC) derivative transactions. Clearing of an OTC transaction would require public gas systems to post collateral and meet potential margin calls for each of their OTC contracts whenever required and often on little notice, according to APGA. It said that inn the case of a standard exchange traded gas contract, the initial margin collateral that would be required to be posted is approximately $5,000 per contract.
“While the CFTC currently sets and ensures adherence to federal position limits for certain agriculture products, the agency does not do the same for energy markets,” Gensler said in announcing the hearings on July 21. “Our hearings, beginning next week, will be critical as we look into different approaches to regulate energy markets. I look forward to hearing from our panelists as we consider applying position limits to energy markets.”
While the CFTC will focus initially on energy markets, it intends to further review “other commodities of finite supply in future hearings,” he added. The hearing will be webcast at the commission’s website, www.cftc.gov.
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