Senate repeal of the Commodity Futures Modernization Act (CFMA), which would subject trading of over-the-counter energy derivatives to greater regulatory oversight, “would rescind significant advances” that have been brought about by the 14-month-old law, and in the end could accelerate flight to overseas markets, warned the head of the Commodity Futures Trading Commission (CFTC).

Chairman James E. Newsome said he agreed with recent statements of Federal Reserve Chairman Alan Greenspan and SEC Chairman Harvey Pitt indicating that a “departure from the path of progress set out in the CFMA should be approached with caution, could cause unintended consequences, and would be premature at this point.”

There is no “credible evidence” to justify a change in the law, he told the International Futures Industry Conference in Boca Raton, FL. “A situation of this sort deserves careful consideration of the facts before action is taken.”

Newsome avoided any reference to Sen. Dianne Feinstein (D-CA), who is seeking to close a loophole in the CFMA that exempts OTC energy derivatives from regulatory oversight. Her proposal would bring energy derivatives — futures, swaps and options — under the umbrella of the CFTC. The controversial amendment to the Senate omnibus energy bill has not been voted on yet. Rather, it has been set aside while Feinstein and Sen. Phil Gramm (R-TX) attempt to work out a compromise.

Newsome touted the benefits of the CFMA before the group. “A real strength…of the CFMA is that it gives trading platforms the freedom to choose for themselves the level of regulatory oversight by selecting which products they will trade and who will be permitted to trade them. The CFMA effectively lowered many barriers to entry and has already begun to promote new competition — competition that can benefit the users of all markets.”

Repeal of the CFMA “could very well stifle market innovation, hinder investment in new technologies, and even cause markets (and market share) to move offshore,” he warned.

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