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Munis Press for Oversight of OTC Market in Democratic Congress

January 25, 2007
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The American Public Gas Association (APGA), Iowa Association of Municipal Utilities (IAMU) and more than 30 Iowa public natural gas systems Wednesday called on Senate Agriculture Committee Chairman Tom Harkin (D-IA) to press for legislation in the new Congress that addresses a "critical lack of transparency" in the over-the-counter (OTC) gas market.

While gas traders operating on regulated exchanges like the New York Mercantile Exchange (Nymex) have their large positions reported daily to the Commodity Futures Trading Commission (CFTC), the OTC markets, including centralized markets for trading gas contracts, are largely exempt from regulation, the municipal utility groups and gas utilities said in their letter to Harkin.

"We believe that the lack of oversight over one portion of the market creates an unacceptable risk that traders in this market segment are able to engage in unlawful activities with a lessened likelihood of detection," they said. "It simply makes no sense to have oversight over one portion of the market and no oversight over another, particularly given that the OTC markets are one of the fastest growing segments of the natural gas marketplace."

This current lack of transparency in a "very large" part of the gas market "certainly leaves open the potential for participants to engage in manipulation strategies...This has led to a growing lack of confidence by our gas systems, and the customers served by them," the municipals said.

"We strongly urge you to support the passage of legislation that provides the CFTC with the authority to collect information concerning all positions held by the largest trades in the natural gas derivatives markets, and not just those derivatives positions cleared through the Nymex exchange."

Several lawmakers, notably Sen. Dianne Feinstein (D-CA), have sought to obtain greater oversight of the OTC markets in past years, but their efforts were unsuccessful when Republicans controlled Congress. But now that Democrats are in charge of both houses, legislation to exert greater control over the OTC market may have better odds.

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