Regulator wins more energy trade oversight
WASHINGTON (Reuters) - The U.S. futures market regulator is set to get more authority from Congress over oil and natural gas trading, which many lawmakers believe will help deter manipulation in energy markets and rein in excessive speculative investing.
The Senate and House of Representatives overwhelmingly approved legislation that closes the so-called "Enron loophole," which allows exempt electronic platforms like the Atlanta-based Intercontinental Exchange (ICE.N) to trade a host of energy contracts with little government oversight, unlike the regulated New York Mercantile Exchange NMX.N.
Lawmakers backed more oversight as oil prices surge to record highs and more hedge funds use exempt markets to bet on energy prices, two factors in how much consumers pay for gasoline, heating oil and natural gas.
"Right now, there is an orgy of speculation in the energy markets, which drive up prices for consumers and hurt our economy," said Democratic Senator Byron Dorgan.
"Closing this loophole is one important step in our efforts to prevent price manipulation and to wring some of this speculation out of the market in order to put downward pressure on gas prices," he said.
The policy change would allow the Commodity Futures Trading Commission to get more information on exempt contracts that are similar to contracts listed on regulated exchanges and that play an important role in setting prices for the underlying commodities.
The new authority for the CFTC was included in a $289 billion farm bill that the White House has threatened to veto. But the bill garnered enough support in the Senate and House to override any veto.
"This legislation that is being sent to the president's desk puts real teeth back to the CFTC to start looking at some of these energy trades," said Democratic Sen. Maria Cantwell.
The bill requires the CFTC to monitor trading on exempt commercial markets in oil, gas and other commodities that have a significant price discovery function.
CFTC officials told Congress last year that the ICE's natural gas contract would probably qualify as such a contract. An agency spokesman said the agency would have to issue a final rule spelling out how it would designate the contracts, and then review the contracts trading on the various exempt markets, a process that would take several months.
Investors would be limited in how many such contracts they could control and large traders would have to report their contract positions.
The bill requires the CFTC and the exempt electronic exchange to investigate potential fraud and manipulation in trading.
Fines for market manipulation would be increased tenfold and the criminal penalty would be raised to a felony from a misdemeanor for those who fail to comply with agency orders to stop all trading connected with fraud and manipulation.
ICE has been providing more trading information to the CFTC, and the exchange has said it generally supports additional authority for the agency.
Separately, the legislation clarifies that the CFTC has authority to fight retail fraud in foreign currency trading taking place outside of regulated futures exchanges.
A federal court in 2004 curtailed the CFTC's ability to combat off-exchange foreign exchange fraud, ruling that the contracts were not futures contracts but a type of spot contract that could not be the basis for a CFTC fraud case.
The CFTC said because of the 2004 ruling it has lost some key forex cases and it is more difficult for the agency to prosecute forex fraud.
(Reporting by Tom Doggett; editing by Jim Marshall)
