Enron Loophole Closed
- From: JG <jgrove24@xxxxxxxxxxx>
- Date: Wed, 28 May 2008 15:40:15 -0700 (PDT)
"When Congress overrode President Bush's veto of the farm bill, it
allowed a provision in the legislation to take effect. The provision
closes what's called the "Enron Loophole," which limited regulators'
oversight of electronic trading of contracts for future delivery of
oil.
Legislation that passed in 2000, thanks in part to lobbying by now-
defunct energy giant Enron Corp., gave regulators little ability to
look at electronic trading of futures contracts. Much of this trading
is done on lightly regulated overseas exchanges.
The 2006 collapse of a major hedge fund, Amaranth Advisors,
spotlighted how a single investor could build up large positions
outside the reach of regulators and influence what consumers pay to
heat and cool their homes."
.......
"U.S. Sen. Jeff Bingaman, chairman of the U.S. Senate Energy
Committee, said Commodity Futures Trading Commission (CFTC) officials
provided "glaringly incomplete" data to back up testimony that
speculative trading is not the chief reason behind crude oil's rise
above $135 a barrel.
CFTC experts testified that market forces are primarily responsible
for the rising price of oil, although investors may be profiting from
the trend.
Bingaman, a New Mexico Democrat, sent acting CFTC chairman Walter
Lukken a letter asking why the agency classifies large investment
banks and other swap dealers as commercial traders -- the same
category it uses for more traditional investors in the physical oil
market such as oil companies and airlines.
"The practice of including investment banks in the commercial
participant category calls into question the CFTC's continued
assertion that non-commercial participants, or speculators, follow
rather than lead oil price movements," Bingaman wrote in the letter.
Bingaman also said a recent trend of institutional investors buying
petroleum storage capacity has led to "concerns regarding potential
market manipulation strategies," and asked the CFTC about how it
tracks such trading activity.
......
Senate Majority Leader Harry Reid this month proposed legislation that
would prevent traders of U.S. crude oil from routing transactions
through off-shore markets to evade speculative limits. It also sets
forth reporting requirements.
The bill also requires the CFTC to boost margin requirements for all
oil futures trades, in an attempt to put a lid on what Democratic Sen.
Byron Dorgan has called "an orgy of speculation in the energy
markets."
As a part of its farm funding bill, Congress this month gave the CFTC
more authority. The bill closed the so-called "Enron loophole," which
allows exempt electronic platforms like the Atlanta-based
Intercontinental Exchange to trade a host of energy contracts with
little government oversight, unlike the regulated New York Mercantile
Exchange."
.
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