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Regulators, Exchanges Try to Calm Energy Markets Following Lehman Shakeup
Energy regulators and exchanges moved quickly Monday to calm fears about the futures markets after Lehman Brothers Holding Inc. filed for bankruptcy protection and Merrill Lynch & Co. agreed to be sold to Bank of American Corp. for $50 billion. The Lehman bankruptcy roiled Wall Street and financial markets around the world. The New York Stock Exchange was down 410 points; Dow Jones Industrials was off 504 points (the biggest drop since September 2001); and the S&P 500 lost about 57 points in daily trading.
The Commodity Futures Trading Commission (CFTC), which regulates crude oil and natural gas futures, “is closely monitoring the markets in connection with recent challenges faced by Lehman Brothers Holding…and other market developments. The CFTC has been coordinating closely with other federal and international regulators and self-regulatory organizations to ensure that customers of Lehman’s CFTC-regulated futures commission merchant are protected, and to take steps to maintain the stability and orderliness of the commodity futures and options markets,” said Acting CFTC Chairman Walter Lukken.
Securities and Exchange Commission (SEC) Chairman Christopher Cox said the agency is working with the Treasury Department, Federal Reserve and regulators from the United Kingdom, German and Japan to “coordinate our actions in the interest of orderly markets.” The SEC will use its “regulatory and supervisory authorities to reduce the potential for dislocations from Lehman’s unwinding and to maintain the smooth functioning of the financial markets.”
CME Group said Lehman Brothers Inc., a clearing member of the CME Group, continues to meet all of its obligations to CME Clearing and is operating as normal. Lehman Brothers Inc. is a subsidiary of Lehman Brothers Holdings, but is a separate company with its own accounts, assets and customers, according to CME Group.
The accounts, assets and customers are protected through a comprehensive federal statutory and regulatory regime and other financial safeguards and risk management protections provided by CME Clearing. All customer funds are required to be segregated from firm assets, held in specially identified accounts and are not subject to any creditors’ claims against the firm, CME Group said.
CME Clearing settles and guarantees all matched transactions in CME Group companies on the Chicago Mercantile Exchange, Chicago Board of Trade and the New York Mercantile Exchange (Nymex).
Atlanta-based IntercontinentalExchange (ICE), an operator of global regulated exchange and over-the-counter markets, also confirmed that Lehman Brothers continues to meet all obligations at its U.S. futures clearinghouse (ICE Clear).
October natural gas futures opened in the low $7/Mcf range Monday and crude oil was below $96/bbl on fears that the U.S. economy may be tanking, and on the news that damage to Gulf of Mexico oil and gas facilities from Hurricane Ike appears to be limited. Natural gas recovered to close at $7.374/Mcf Monday, while crude oil closed at $95.71/bbl on Nymex.
While commodities had a wild ride, some energy traders were not quick to blame the economic turmoil (see related story).
Lehman Brothers, which reported a net loss of $4 billion for the third quarter, filed for Chapter 11 bankruptcy with the U.S. Bankruptcy Court for the Southern District of New York after the federal government refused to bail it out. The company said that none of its broker-dealer subsidiaries or other subsidiaries are included in the Chapter 11 filing, and that all of its broker-dealers will continue to operate.
One of Lehman Brothers’ key energy assets is energy marketer Eagle Energy Partners (see Daily GPI, May 10, 2007). Eagle Energy aggregates physical gas supply, arranges transport and sells to customers throughout the eastern United States. On the power side, it manages generation and offers real-time services for generation and load obligations. Eagle Energy, which is headquartered in hurricane-ravaged Houston, could not be reached for comment.
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