US senator aims to stop energy market manipulation

By Tom Doggett

WASHINGTON, Sept 17 (Reuters) - Sen. Carl Levin introduced legislation on Monday to allow U.S. regulators to track trading of energy futures contracts on currently-exempt electronic exchanges to help prevent price manipulation and excessive speculation of oil, natural gas and other energy commodities.

The legislation comes a day before the Commodity Futures Trading Commission holds a hearing on government oversight of regulated exchanges like the New York Mercantile Exchange and exempt markets like the IntercontinentalExchange in Atlanta, though both trade similar energy contracts.

The CFTC has full oversight of the NYMEX, but the agency gets bogged down in a regulatory blackhole when it tries to find out what's going on at exempt electronic exchanges like the ICE, which operates without the full reporting requirements imposed on the competing NYMEX.

Congress passed legislation in 2000 exempting from most government oversight electronic exchanges that trade energy products, as is the case with ICE.

But with more hedge funds using these exempt markets to bet on energy prices -- with the potential to rack up big profits or suffer huge losses -- lawmakers are pushing for more government oversight.

Levin's bill would close the loophole by requiring all energy trading facilities to register with the CFTC and comply with the same standards that apply to regulated futures exchanges.

"We need to put the cop back on the beat in all U.S. energy markets with effective tools to stop price manipulation, excessive speculation and trading abuses," Levin said.

Under the legislation exempt markets would have to impose position limits that would set a ceiling on the amount of energy contracts a single trader could control.

Large trades of U.S. energy commodities, originating from the United States, on foreign markets also would have to be reported to the CFTC, under the legislation, unless the CFTC has an agreement with the relevant foreign exchange to obtain the same information.

The energy commodities that would be subject to Levin's bill include crude oil, gasoline, natural gas, heating oil, diesel fuel and electricity.

NYMEX President James Newsome and ICE Chairman Jeffrey Sprecher are scheduled to testify on Tuesday at the CFTC's all-day hearing the level of government regulation needed in energy markets.

Sprecher has told Congress in the past that no additional legislation or regulation is needed to fill any regulatory gap. Newsome has told lawmakers that ICE functions like a traditional futures exchange in setting energy prices and should be subject to full regulation by the CFTC.