An industrial energy consumers group has voiced its support for legislation that would close a “substantial part” of a regulatory loophole by giving the Commodity Futures Trading Commission (CFTC) oversight of the over-the-counter (OTC) energy electronic trading market.
In a letter to the heads of the Senate Agriculture Committee, Paul N. Cicio, president of the Industrial Energy Consumers of America (IECA), said his group would oppose CFTC reauthorization if language to close the oversight gap is not included in it. The bill (S. 2642) was introduced by Sen. Dianne Feinstein (D-CA) in April, and is currently pending before the committee.
“In the energy over-the-counter markets, there is neither sufficient government oversight nor sufficient penalties to deter manipulation. In the case of natural gas, we believe that less than one-third of all daily trades have CFTC oversight,” he told Committee Chairman Saxby Chambliss (R-GA) and Sen. Tom Harkin of Iowa, the ranking Democrat on the Senate agriculture panel.
“IECA does not want to regulate energy markets in the sense of controlling the market or prices. [But the] IECA does support stronger government oversight, transparency and a level playing field. None of these attributes exist today for the energy trading complex other than Nymex [the New York Mercantile Exchange] and they are a small portion of the total volume that is traded each day,” Cicio noted.
“Asking only ‘large traders’ to report their position to the CFTC, just like the Nymex does today, is not asking too much of these companies. These same companies do ‘mark-to-market’ position accounting at the end of each trading day for internal reasons anyway,” he said.
Even CFTC regulators acknowledge that their hands are tied with respect to the OTC market, according to Cicio. At a meeting earlier this month, CFTC Commissioner Michael V. Dunn noted that “because the CFTC is barred from regulating the OTC markets…it is virtually impossible to know…the extent of fraud and manipulation that may be occurring in the over-the-counter markets.”
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