A cautious CFTC comes under congressional fire

Many House and Senate members blame market speculators instead of so-called Big Oil for record prices. Acting CFTC Chairman Walter L. Lukken may feel as if he's in several federal lawmakers' gun sights.

Jun 13th, 2008

As the Senate prepared to debate its latest oil tax bill on June 10, many members of Congress opened fire on so-called Big Oil, their perennial whipping boy whenever retail gasoline prices soar and voters start to complain.

But energy politics acquired a new dimension the past few months as many House and Senate members started to blame market speculators as well. So Walter L. Lukken, the Commodity Futures Trading Commission's acting chairman, can be forgiven if he feels that he's also in the cross hairs of several federal lawmakers' gun sights.

His nomination to become CFTC chairman could be in trouble. Sen. Byron L. Dorgan (D-N.D.), who compares loosely regulated commodity exchanges to gambling casinos, announced on June 9 that he would oppose. He said that he believes Lukken has not provided the leadership necessary to keep oil market speculators in line.

That same day, Sens. Olympia J. Snowe (R-Me.), Dianne Feinstein (D-Calif.), Ted Stevens (R-Alaska), Maria Cantwell (D-Wash.) and Ron Wyden (D-Ore.) jointly urged the CFTC to exercise emergency authority to require disclosures by institutional investors who use swaps dealers.

'Massively different'

"Although the historic price increases and their toll on the American people is similar to the energy crises of previous generations, speculation is massively different and we must ensure that these markets are properly working and not subject to manipulation," Snowe said.

The CFTC has moved carefully in the last year. It investigated allegations that traders were buying US crude oil commodities on the Intercontinental Exchange, which is based in London. ICE agreed to institute requirements identical to those for such products on the New York Mercantile Exchange.

The commission also formed an energy markets advisory committee in February to examine emerging issues in those markets and the CFTC's role in regulating them. Members include representative from energy and commodities trade associations, institutional investors, oil and commodities traders, and energy consumers. The group held its first meeting on June 10.

'Cooperation and coordination'

On June 10-11, the CFTC brought senior enforcement officials from other countries' commodity market regulatory agencies to Washington for its second annual manipulation conference. "Since no global regulator exists, it is critical that the international sister agencies continue cooperation and coordination to ensure market integrity," CFTC Enforcement Director Gregory Mocek said.

But the agency's most significant move may have been on May 29 when it officially disclosed that its enforcement division has been investigating crude oil and derivatives markets since December. It also said that overseas commodities regulators could require fuller disclosures.

Several congressional critics weren't satisfied. "Unfortunately, the CFTC has not proposed how to close off the loopholes that allow commodity index funds and others to take such massive positions that possibly distort oil futures markets," House Energy and Commerce Committee Chairman John D. Dingell (D-Mich.) said.

Richard J. Durbin (D-Ill.), the Senate's majority whip, noted on June 9 that by 2009, the CFTC will be required to oversee around 980 million futures transactions which are becoming increasingly complex, yet its workforce has shrunk from 546 to 475 employees since 2000. Congress should give it money to increase its commodities market enforcement "and ensure that these extra resources are applied," he said.

Contact Nick Snow at nicks@pennwell.com

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