In light of growing concerns about the impact of speculation in energy markets, senators have offered a flurry of measures that would extend the regulatory arm of the Commodity Futures Trading Commission (CFTC), as well as immediately increase its funding.

One bill (S. 3130), sponsored by Sen. Richard Durbin (D-IL), expresses the “sense of the Senate” that President Bush should immediately send to Congress a request for emergency appropriations to add at least 100 new full-time positions at the agency and to significantly improve the information technology of the CFTC during the current fiscal year.

The Senate Agriculture Committee and Appropriations Subcommittee on Financial Services and General Government, which Durbin chairs, scheduled to hold a joint hearing Tuesday to explore the need for additional funding, staffing and authority for the CFTC, the agency charged with the regulation of energy futures and other commodities.

With respect to U.S.-based traders trading on foreign boards of trades, exchanges or markets outside of the United States, Durbin’s legislation would give the CFTC the authority to enforce its manipulation and attempted manipulation authority; require or direct traders to limit, reduce or liquidate any position to prevent or reduce the threat of price manipulation; and require such traders to comply with certain recordkeeping rules. Prior to taking this action, the bill would require the CFTC to consult with the foreign board of trade, exchange or market and the appropriate regulatory authority.

In effect, the bill would close the so-called “London Loophole” by requiring all traders on oil futures markets to report transactions in a detailed manner to the CFTC, Durbin said. It directs the CFTC to investigate the impact of these trades on the price of oil and other energy commodities as well.

A second measure (S. 3129), sponsored by Sen. Carl Levin (D-MI), also seeks to extend the CFTC’s regulatory reach and increase transparency with respect to energy trading on foreign exchanges. Both bills were co-sponsored by Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee.

In a related development, Sens. Dianne Feinstein (D-CA) and Ted Stevens (R-AK) introduced legislation Friday to require the CFTC to impose the same position limits on the trades of institutional investors to which other investors are now subject.

While the CFTC currently is required to impose speculation limits on the size of energy trader positions, the agency in practice regularly exempts institutional investors from position limits when their trades are executed through brokers or dealers, Feinstein and Stevens said.

“It is becoming clear that rampant speculation in energy markets by institutional investors may be driving up the price of oil and gas. And yet [the] CFTC exempts these investors from the position limits that are imposed on all other speculators,” Feinstein said.

“This gives institutional investors an unfair advantage in the marketplace — and is contributing to the skyrocketing energy prices. It’s time to level the playing field, and require position position limits for all speculators.”

The CFTC last month announced that it would review the trading practices of these investors to ensure that this type of trading activity is not adversely impacting the price discovery process.

The legislation (S. 3131) calls for the CFTC to review the trading practices of institutional investors and their dealers within 30 days to determine whether increased regulation is necessary, and to propose to Congress regulations and measures that are necessary to prevent the run-up in fuel costs in futures markets.

In addition to setting position limits for institutional investors, the measure would require institutional investors to report their energy market positions to the CFTC as other traders must do, even when trades are executed by a third-party broker, and it would force CFTC regulations and reports to begin distinguishing between institutional investors and the “swaps dealers” or “index traders” who broker their own trades.

Moreover, the bill calls for the Office of the CFTC’s Inspector General to be removed from the CFTC chairman’s office and and to be established independently.

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