Sen. Carl Levin (D-MI) Monday said he and several other senators are drafting legislation to be debated in the fall that would subject all currently unregulated electronic energy trading platforms, such as Atlanta-based IntercontinentalExchange (ICE), to the oversight of the Commodity Futures Trading Commission (CFTC).
The legislation would eliminate the so-called Enron loophole to the Commodity Exchange Act, which excludes electronic energy trading platforms from CFTC regulation, said Levin, chairman of the Senate Permanent Subcommittee on Investigations (PSI), which has spent the last year investigating “excessive speculation” in the natural gas futures markets. The loophole is a “recipe for mischief,” he told reporters during a Platts Energy Podium in Washington, DC.
The measure would bring ICE and others under the same regulation as the New York Mercantile Exchange (Nymex), he said. Levin noted that he is working with Sen. Dianne Feinstein (D-CA), who has advocated closing the Enron loophole for years, and Sens. Olympia Snowe (R-ME) and Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee. The lawmakers will seek to close the loophole in separate, stand-alone legislation or as an amendment to another bill, he said.
Since “you can’t get [into] every bilateral trade,” Levin said the bill probably would only require that bilateral energy trades that are cleared through electronic trading exchanges be regulated by the CFTC. “That seems to be a logical place to draw the line.” Levin further noted that the bill would cover all energy, not just natural gas.
Past efforts in Congress to eliminate the Enron loophole have been defeated, but Levin thinks the tide may be shifting. “Suddenly you got a major business force on our side” — Nymex and “probably” ICE, he said.
At a hearing earlier this month before Levin’s subcommittee, ICE Chairman and CEO Jeffrey C. Sprecher signaled his support for legislation that would eliminate excessive speculation in natural gas trading markets and establish limits on the positions that energy traders could hold on electronic trading exchanges (see Daily GPI, July 10).
“We were caught pleasantly [by surprise] by ICE and also by Nymex” during the hearing, Levin said.
As for the enforcement actions taken by the CFTC and Federal Energy Regulatory Commission last week against failed hedge fund Amaranth Advisors LLC, he said “obviously there was some sense of satisfaction that we triggered” the two agencies into action. But he stressed that the PSI’s hearings and year-long investigation into speculation in the natural gas futures markets, which focused exclusively on Amaranth, was entirely different from the focus of the regulators’ enforcement actions, which was manipulation of the gas markets.
“We did not look at the manipulation piece,” he said during the press briefing. The CFTC and FERC were interested in “punishing” people who allegedly manipulated the market, which Levin said he and his subcommittee supported.
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