Senate Democrats offer flurry of oil market speculation bills

Sen. Bill Nelson (D-Fla.) announced that he introduced a bill late last week to require all energy commodities be traded on regulated markets. The measure was one of four aimed at cracking down on energy price speculators which Senate Democrats introduced last week.

Sen. Bill Nelson (D-Fla.) announced that he introduced a bill late last week to require all energy commodities be traded on regulated markets. The measure was one of four aimed at cracking down on energy price speculators which Senate Democrats introduced last week.

"Clearly, unregulated speculators have bid up oil prices to unbelievable and unacceptable highs. Congress needs to step in. We need to shine a light on all the participants and put an end to excessive speculation and any unlawful market manipulation," Nelson said on June 16.

He said that he prepared the bill after Michael Greenberger, a University of Maryland law professor who directed on the US Commodity Futures Trading Commission's trading and markets division during the late 1990s, told a Senate Commerce Committee hearing on June 3 that energy markets became open to speculators because the 2000 Commodity Futures Modernization Act exempted trading from oversight with the so-called Enron loophole.

The other bills include one co-sponsored by Sens. Carl M. Levin (D-Mich.), Dianne Feinstein (D-Calif.), Richard J. Durbin (D-Ill.), Byron L. Dorgan (D-N.D.) and Jeff Bingaman (D-N.M.) which would require the US Commodity Futures Trading Commission to obtain trading data from foreign exchanges operating in the United States on direct trading terminals.

Doing this would close a "London loophole" where US oil commodities are traded on the less closely regulated InterContinental Exchange which operates under British jurisdiction, Levin said on June 12. If the bill, S. 3129, became law, a foreign board of trade would have to agree to impose margin limits and disclosure rules like those used by US-based exchanges regulated by the CFTC before the foreign exchange could place direct trading terminals in the US.

Expand CFTC workforce

S. 3130, a bill which Durbin introduced the same day, would give the CFTC money to hire another 100 employees, make the agency's inspector general independent, order the US comptroller general to study the international regime for trading energy futures and derivatives and submit a report to Congress within 120 days of the bill's enactment, and require a non-US board of trade selling an energy commodity for US delivery to operate under US regulations.

Feinstein and Ted Stevens (R-Ak.) are co-sponsors of another bill, S. 3131, which would require the CFTC to impose on institutional investors the same position limits other commodity market investors have. Institutional investors would have to report trades to the CFTC, even when they are executed by a third-party broker. CFTC reports and regulations would have to differentiate institutional investors from swaps dealers or index traders who broker the trades, Feinstein said on June 13.

"It is becoming clear that rampant speculation in energy markets by institutional investors may be driving up the price of oil and gas. Yet the CFTC exempts these investors from the position limits that are imposed on all other speculators. This gives institutional investors an unfair advantage in the marketplace, and is contributing to the skyrocketing energy prices," Feinstein said. The bill also would move the CFTC's inspector general from within the agency and make that office independent.

Nelson said that Sen. Joseph I. Lieberman (I-Conn.) is working on a proposal to ban large institutional investors from the commodity markets.

The Senate Agriculture, Nutrition and Forestry Committee and the Appropriations Committee's Financial Services and General Services Subcommittee will hold a joint session to discuss the role, responsibilities and resource needs of the Commodity Futures Trading Commission in overseeing energy and agricultural futures and derivatives on June 17. Scheduled witnesses include Acting CFTC Chairman Walter L. Lukken, James E. Newsome, president of the New York Mercantile Exchange, and Charles A. Vice, who holds the same position at ICE.

Contact Nick Snow at nicks@pennwell.com

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