EnergyBiz - January/February 2008 - (Page 16) » FInanCIaL FRont The future of futures regulation cftc Role DeBAteD By DARRell DelAmAiDe The commodiTy FuTures Tr ading commission is, in some respects, a victim of its own success. Launched in 1975 to take futures regulation out of the sphere of the Agriculture Department, the CFTC made possible the subsequent explosion of nonagricultural futures, including energy and financial futures. And then in 2000, in an enlightened move, Congress passed the Commodity Futures Modernization Act, which shifted the CFTC from a rules-based regulator to a principles-based regulator and made it possible for the rapid pace of innovation in the futures markets to continue without being stymied by the approval process of a slow-moving regulatory bureaucracy. The result for the futures markets has been stunning. The Chicago Mercantile Exchange, the leading futures market, is now valued at $37 billion, half again as much as the $24 billion value attributed to NYSE Euronext, the operator of the venerable New York Stock Exchange. Not only hedge funds, but pension funds, university endowments, and even staid mutual funds and retail investors are pouring more money into futures contracts instead of the traditional stocks and bonds, trying to get a piece of the commodities boom. But what about the CFTC? It is currently operating on borrowed time, some two years past its legislative expiration date as Congress dawdles over its “reauthorization.” It has trouble keeping a chairman, often operating months on end, as now, with an “acting” chairman. It also has trouble keeping its full complement of five commissioners, sometimes dwindling as low as two commissioners. It currently has four. In the meantime, the U.S. Treasury is making noises about merging CFTC into the larger and older Securities and Exchange Commission as it explores the possibility of regulatory consolidation – combining the hodgepodge of U.S. financial regulators into a single, streamlined agency as have other major industrial countries – to keep U.S. financial markets competitive. At the same time, the Federal Energy Regulatory Commission, brandishing its new congressional mandate NewsFlash from the energy act of 2005 to prosecute manipulation of aTTaCkinG Copper TheFT energy prices, is challenging CFTC’s jurisdiction in the Puget Sound Energy is on a campaign to fight Amaranth case. copper theft. As the lame-duck Bush By combining new administration limps its deterrent technologies final laps and a Democratic with increased law Congress somehow is unable enforcement, the utility has decreased copper to channel its majorities into thefts from substations any significant legislation, it’s by 28 percent and not likely that the bigger plans more than doubled the for the CFTC will be achieved number of arrests for the thefts in the past year. anytime soon. But it also Walter Lukken became acting chairman of the Commodity Futures Trading Commission in June. sOurcE: ap phOTO/charLEs Dharapak means that some of the smaller issues – such as reauthorization and designation of a permanent chairman – may also be slow in getting resolved. One concrete measure seems likely to get enacted, in line with Washington’s practice of shutting the barn door after the horse has gotten out. The over-the-counter contracts that made it possible for Amaranth to hide its positions in natural gas futures once it had reached its limits in trading on the New York Mercantile Exchange are likely to come under the supervision of the CFTC. In hear- 16 E n E rgyB i z January/February 2008 http://www.energycentral.com
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