Natural gas industry stakeholders were encouraged to get up to speed and involved in the complicated and long implementation process now under way on the Dodd-Frank Wall Street Reform and Consumer Protection Act during a panel discussion at the LDC Gas Forum: Rockies & West meeting Tuesday in Los Angeles.
Representatives of CME Group, the Commodity and Futures Trading Commission (CFTC) and BP plc’s North American operations said the process needs as much industry input as is possible.
Patrick McKinnon, CME Group’s associate director of energy products, warned that if companies don’t get involved in the process they eventually will be swallowed up by the highly technical complex legal matters that cut across energy, banking, capital markets and investment management rules and operations.
“If you don’t reach out and touch this [at the CFTC], it will reach out and touch you back,” said McKinnon, noting anyone involved in buying/selling natural gas is going to be impacted by the rules. “You will have changes in the way you do business, although at this point, we don’t know exactly what that change might be.”
Ultimately, the awareness and understanding of the proposed CFTC rules are going to have to “migrate all the way down to the trading floor,” McKinnon said.
Richard Shilts, CFTC ‘s director of market oversight, gave a nuts-and-bolts presentation, including the trading systems proposed by the commission and swaps being exempted from trading requirements. Ultimately, he listed a number of key issues that are still be worked out as part of the elaborate implementation process. One of those is figuring the cost of compliance, and another is assuring trader anonymity.
BP’s Mark Stultz, senior vice president for regulatory policy and communications, said his company has worked with the National Petroleum Council, the National Gas Supply Association and corn growers to make recommendations for defining “swap dealers.” The effort is still a work in progress, he said.
“It is a sign of the times that the regulatory risks facing LDCs [local distribution companies] and large commercial/industrial customers have expanded exponentially into new regulatory areas,” Stultz said. “There is a lot out there to worry about, including the provisions in Dodd-Frank.”
Shilts urged industry representatives to comment to provide the trading regulators with a clearer idea of how the physical markets operate and interact. Stultz picked up of this and urged participation. “The commission needs to take the time to do this [Dodd-Frank] implementation and to do it right,” he said. “We encourage them to take the extra time.”
“We need to make sure we are constructively engaged so there are no surprises when the final CFTC rules finally roll out.” Ultimately, Stultz said that BP is concerned that there still will be a role for cost-effective risk management, namely hedging.
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