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Senators Urge CFTC, SEC to Define 'Swap,' Put Regs Into Effect

A group of five senators has 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. Nearly 10 months later, the CFTC issued a final rule seeking to curb excessive speculation in commodity futures contracts and economically equivalent swaps, but the agency will not enforce the rule until the term "swap" is defined.

"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 Chairman Mary Shapiro.

As the agency nears completion of the major rules stemming from the Dodd-Frank financial reform law, there also have been reports that it may ease its requirements on what trades companies must report under its position limits rule. As it stands a company must aggregate all trades of any company in which it owns more than a 10% interest. That could be raised to any company in which it owns more than a 50% interest, which would eliminate tangential affiliates.

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. (see Daily GPI, Oct. 19, 2011).

"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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