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Senators to CFTC, SEC: Define 'Swap,' Put Regs In Effect

A group of five senators last Tuesday called on the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to define swaps, security-based swaps and other key terms so that limits on market speculation can be put into effect.

The statutory deadline to establish limits on energy market speculation was January 2011. Late last year the CFTC issued a final rule seeking to curb excessive speculation in commodity futures contracts and economically equivalent swaps, but the agency still has not enforced the rule because the product to be regulated -- swaps -- has yet to be defined (see NGI, Oct. 24, 2011).

"Each day that passes without a definition for 'swap' allows speculation in over-the-counter...markets to continue without risk management tools and undermines effective oversight on regulated exchanges," wrote Sens. Dianne Feinstein (D-CA), Olympia Snowe (R-ME), Carol Levin D-MI, Tom Harkin (D-IA) and Maria Cantwell (D-WA) to CFTC Chairman Gary Gensler and SEC Chair Mary Schapiro.

The CFTC rule establishes limits on traders' speculative positions in 28 core physical commodity contracts, four of which are energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and Nymex New York Harbor Heating Oil.

"Unfortunately these limits will not take effect until the regulation defining a 'swap' is issued. Further the definition of 'swap' must be broad enough to make these limits effective," the senators said.

"We are also concerned that industry continues to push regulators to limit the definition of a 'swap' to exclude much of their trading activity. We urge you to make completion of the necessary definitions a high priority of your respective agencies until effective and comprehensive limits on excessive speculative trading are in force."

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