President’s Anti-Speculation Campaign Draws Skepticism

Under pressure to address high gasoline prices in a politically charged election cycle, President Obama outlined an initiative to strengthen oversight of energy markets.  It is important to note that some of the President’s proposals require significant budget increases – including an additional $52 million in CFTC funding.  To garner such increased appropriations as lawmakers ready for the campaign trail with the budget a hot-button issues seems highly unlikely.

The President plan would:

1)      Increase funding to increase the number of surveillance and enforcement staff charged with oversight of the oil futures market;

2)      Allow the Commodity Futures Trading Commission (CFTC) to upgrade the technology used to monitor the energy markets;

3)      Increase the civil and criminal penalties for those convicted of manipulating the oil futures market;

4)      Provide the CFTC with additional the authority to limit disruptions in the oil market, including allowing the CFTC to direct exchanges to raise margin requirements; and

5)      Expand access to CFTC data so that analysts can better understand trading trends in the oil markets.

CME Group quickly issued a response warning the Administration against “mistakenly categorizing speculation as a form of manipulation.”  Moreover, CME Group defended the exchange’s right to set margins.  “The Administration must recognize that exchanges, as operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements,” CME Group said.

Potentially noteworthy: In his Rose Garden speech unveiling the initiative President Obama invoked Enron as a cautionary tale.  A day later, CFTC Chairman Gensler also invoked Enron as justification for the swap dealer rule.  Ten years later, Enron continue to have political traction.


Gensler Fights On Two Fronts

While he has probably grown somewhat accustomed to the external attacks from lawmakers, trade groups and business, CFTC Chairman Gary Gensler finds himself also fighting off attacks within the Commission.  The discontent now reaches from CFTC staff to the Commissioners.  Christopher Doering in his Reuters’ article captures the current sentiment.

The discontent in some ways stems from the top. CFTC commissioners have openly disagreed on what the rules should look like, and the best way to put them into effect. Increasingly, some commissioners have spoken out about being left in the dark about what is going on at their own agency.

It now appears to be trickling down to lawyers, economists and others tasked with finishing the rules on which they have been working nonstop for nearly a year, and have at least six more months to go.

Jill Sommers, a Republican CFTC commissioner who has opposed a number of the rules, told Reuters on Friday she was frustrated by a lack of communication to agency commissioners about things going on at the CFTC.  “It’s frustrating that we find things out third hand,” Sommers said. “I understand there are a lot of different things being juggled and we have limited resources at the commission, so I’m sensitive to that, but I would guess there is a better way to keep us all on the same page.”

What many knew was a growing sense of discord culminated in a very public way around the CFTC’s position limit rulemaking.  The draft final rule was leaked and whistleblower complaints were also broadcast.  All of this at a time when the Commission is tasked with finalizing some of its most important rulemakings: position limits, product and entity definitions, capital and margin requirements, etc.  Again, Christopher Doering in his Reuters’ article, outlines the challenges facing Gensler, but also correctly notes that Gensler sought out many of them.

Gensler quickly became a go-to guy for Congress after being sworn in May 2009.  Lawmakers and staffers at the time lauded his ability to explain a complicated subject clearly and simply as they embarked on the Dodd-Frank financial reform legislation in the wake of the 2008 meltdown on Wall Street.

Gensler worked the halls of Congress and was a fixture on financial television as he pushed for a strengthening of the CFTC’s regulatory powers. When the reform bill was before the Senate Agriculture Committee, Gensler had a front-row seat.

The tide has turned, however.

Republicans, who are chafing at new regulations in general, are particularly vocal in their criticisms of the CFTC. Democrats, already concerned the agency is not being tough enough on Wall Street and anxious for action to crack down on speculators they blame for driving up food and fuel prices, are worried the agency may be watering down the rules.

CFTC Updates

CMC has long sought, through communications with the CFTC and numerous discussions on Capitol Hill, to encourage the CFTC to better coordinate its rulemaking with global commodities and derivatives regulators, so as to not unduly harm American businesses, job creation, capital formation and market liquidity. It is heartening to note that the CFTC has acknowledged our concerns by planning this meeting.

CFTC and SEC Staffs to Host Public Roundtable to Discuss International Issues relating to the Implementation of Title VII of the Dodd-Frank Act
The staffs of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) will hold a joint public roundtable on August 1, 2011, from 9:00 am to 4:00 pm, to discuss international issues related to the implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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CMC Discusses Rep. Owens Letter and Debt Ceiling Debate on Policy Call

This week, on CMC’s policy conference call with our members, we discussed a number of legislative and regulatory topics.  Among those that generated the most interest were the debt ceiling debate in Congress and a letter from Rep. Bill Owens (Democrat – New York) to CFTC Chairman Gary Gensler.

CMC staff expressed the opinion that a last-minute debt ceiling deal will eventually be reached by the two parties in Congress and the Obama administration, and the deal will include significant spending cuts, although much less than what the Republicans are seeking.  Given overnight developments in the ongoing political negotiations, CMC staff remains of that view, although we would add that the deal will probably be of a short-term nature, enabling the elected politicians to kick the proverbial can down the road while they try to negotiate (or not) a more comprehensive, big picture, longer term solution to America’s fiscal and debt situation.

Rep. Bill Owens recently sent a letter to Chairman Gensler urging the CFTC to follow congressional intent by exempting end-users from margin requirements and other regulations.  CMC and many other trade associations supported this letter, which attracted 71 bipartisan co-signers from the House of Representatives.  Chairman Gensler was asked five specific questions around the swap dealer definition, and he has been given approximately two weeks to respond to Congress.

CFTC Vote on Trading Curbs Stalls

Wall Street Journal


December 17, 2010

WASHINGTON—U.S. regulators Thursday released a broad proposal that seeks to curb speculative trading in oil, metals and other commodities, but held off voting on it in another setback for efforts to put in place Congress’s Wall Street overhaul.

CFTC Commissioner Bart Chilton asked how traders would be treated while the rules are being phased in.
The new rules would limit the size of the positions traders could take in the commodities. They respond in part to the spike in oil prices above $140 a barrel in the summer of 2008, which some critics blamed on regulators’ alleged failure to keep a tighter leash on speculation.

Top commodities regulator Gary Gensler has been pushing for position limits since last year, and the Dodd-Frank financial law passed in July authorizes his Commodity Futures Trading Commission to act on the issue.

The commission was nearly ready to do so Thursday, as the five-member body met with a draft of the rules before it. But Mr. Gensler had cold feet at the last moment after commissioners expressed concern, and put off a vote on a formal proposal, probably until January. After a public-comment period, a second vote would be needed to make the proposal final.

“I think it’s just appropriate to let this one ripen a little bit more,” Mr. Gensler said.

The delay highlighted concerns among some, including Republicans in Congress, that the CFTC isn’t taking enough care as it writes rules to transform commodities markets at breakneck speed to meet deadlines under the Dodd-Frank law.

The law gives broad new powers to the CFTC, sparking a rolling battle with Wall Street about issues that will shape markets for many years to come.

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