A coalition of energy firms has called on the Commodity Futures Trading Commission (CFTC) to issue a one-year blanket exclusion from upcoming over-the-counter (OTC) market derivatives rules.
“The issuance of a blanket order by the Commission…is in the public interest as the public has an interest in the establishment by the Commission of any orderly transition process designed to efficiently use its resources to implement its new authority” under the Dodd-Frank Wall Street Reform and Consumer Protection Act; the Working Group of Commercial Energy Firms told the CFTC.
In addition, the public is focused on avoiding “potentially harmful disruption to markets for exempt commodity and incurrence of unnecessary costs by commercial energy firms, either of which could result in increased energy prices;” and implementing “the new framework for the regulation of derivatives set forth in…the Act in a manner that ensures that all persons transacting or operating in reliance on CEA [Commodities Exchange Act]…are treated in a uniform and orderly fashion,” the group said.
“A blanket order will achieve these objectives. Given that exempt commodities constitute approximately 0.4% of the notional value of outstanding over-the-counter derivatives world wide, a blanket order will preserve Commission resources and allow the Commission to proceed in a timely manner with its rulemaking obligations under Title VII of the Act.
“Grandfathering all persons, particularly commercial energy firms that transact, operate or otherwise rely on CEA Section 2 (h)…as well as transactions subject to this statutory provision, for one year from the effective date [of the act] or for a period deemed appropriate by the Commission will help the Commission marshal its its resources to timely develop and implement its new rulemaking authorities under the Act.
“If the Commission decides not to issue a blanket order as requested…the Working Group respectfully requests that the Commission issue formal guidance regarding the procedural and substantiative requirements applicable to individual petitions submitted” under the act.
In July President Obama signed the Democrat-crafted legislation overhauling the financial regulatory system.The legislation, which came nearly two years after the collapse of banks and Wall Street investment houses, called for OTC transactions to be traded on regulated exchanges, much like stocks, and to be cleared in clearinghouses in order to limit excessive speculation in markets. However, it provided a narrowly crafted clearing/trading exemption for large commercial traders that use derivatives to hedge the risk associated with trading of physical products or end-users that use derivatives to legitimately hedge their commercial risk rather than for speculative purposes (see Daily GPI, July 16).
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