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House Measure Would Bolster CFTC Power, Market Transparency

Rep. Collin Peterson (D-MN), chairman of the House Agriculture Committee, has unveiled draft legislation that would expand the authority of the Commodity Futures Trading Commission (CFTC) and increase the transparency and oversight of all commodity futures markets.

The bill nearly mirrors legislation that Peterson introduced last year in an attempt to tame speculation in the energy markets. The measure (HR 6604) was approved by the House in July, but never cleared the Senate.

Like its predecessor the new legislation, the "Derivatives Markets Transparency and Accountability Act of 2009," would require foreign boards of trade to share trading data, have comparable authority to prevent price manipulation or distortion, and adopt speculative position limits on contracts that trade U.S. commodities similar to regulated exchanges in the United States.

The Peterson bill further requires the CFTC to disaggregate and publicly report the number and total value of positions of index funds -- and other passive, long-only and short-only investors -- in all regulated markets, as well as data on speculative positions relative to their bona fide hedgers.

It calls on the CFTC to set trading limits for all commodities to prevent excessive speculation, and would subject over-the-counter (OTC) transactions for all commodities to reporting and recordkeeping requirements. Traders would be required to keep records for five years.

Moreover, the draft proposes that the CFTC hire at least 200 new full-time employees to carry out its enforcement activities, which would require an increase in its annual budget. The budget request by former President Bush for the agency in fiscal year 2009 was $130 million. But the CFTC told Congress last year that it would need $157 million or more to carry out its regulatory duties (see NGI, June 9, 2008).

The CFTC also would be required to study and report on the effects of potential position limits on OTC trading and aggregate limits across the OTC market, designated contract markets and derivative transaction execution facilities. And it orders the agency to determine whether fungible OTC agreements have the potential to disrupt market liquidity and price discovery functions. If they do, the agency would be authorized to impose and enforce position limits for speculators trading the involved agreements.

The Peterson measure further would require all prospective OTC transactions to be settled and cleared through a CFTC-regulated designated clearing organization.

It further requires the Government Accountability Office to study and report on the international regulatory regime for energy commodity futures and derivatives trading.

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