|Received:||5/6/2008 6:08:53 PM|
|Agency:||Federal Trade Commission|
|Rule:||Prohibitions On Market Manipulation and False Information in Subtitle B of the Energy Independence and Security Act of 2007|
Comments:As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds. Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. A June 2006 US Senate report on "The Role of Market Speculation in rising oil and gas prices" noted, "... there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices". What the senate committee staff documented in the report was a gaping loophole in US government regulation of oil derivatives trading. The report pointed out that the CFTC, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states: "Excessive speculation in any commodity under contracts of sale of such commodity for future delivery ... causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity." Further, the CEA directs the CFTC to establish such trading limits "as the commission finds are necessary to diminish, eliminate, or prevent such burden". As that US Senate report noted: "Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. However, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets." The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress. Traders on unregulated OTC exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. There is no limit on the number of contracts a speculator may hold, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts at the end of each day. In January 2006, the CFTC permitted the ICE, the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London - called ICE Futures. Previously, the ICE Futures exchange in London had traded only in European energy commodities. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC's permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange. In January 2006, ICE Futures began trading a futures contract for WTI crude oil. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline and heating oil futures contracts, the CFTC has refused to assert any jurisdiction over the trading of these contracts. Persons within the US seeking to trade key US energy commodities are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE exchange in London. Please fix this obvious loophole.