The Source - Fall 2008 - (Page 21)

feature Market transparency: an insider’s view An APGA success story By Arthur Corbin and Laura Campbell A s the supply/demand balance gets tighter, the market for natural gas has become more volatile, making it more attractive to speculative trading activity and further increasing volatility. While speculative trading does play a significant role in terms of providing liquidity to the market, having a strong and effective oversight of this trading to protect consumers is equally vital. Unfortunately, high importance has not always been placed on market transparency. APGA pushes for transparency Since 2005, the American Public Gas Association (APGA) and its members have communicated to policymakers an increasing lack of confidence in the natural gas marketplace that was tied directly to the lack of transparency. At that time, a large portion of the natural gas over-the-counter (OTC) market was “dark,” meaning that it was exempt from oversight. The Commodity Futures Trading Commission (CFTC), the federal governmental agency charged with overseeing these markets, had no authority to collect information on the transactions that were taking place. For a market to function effectively, a level of transparency must exist to assure The Amaranth fallout This opinion changed in 2006 with the blow-up of the Amaranth Advisors LLC hedge fund and investigations into the impact that Amaranth’s market activities had upon the price of natural gas. Amaranth Advisors was a hedge fund based in Greenwich, Conn., with more than $9.2 billion under management. Although Amaranth classified itself as a diversified multi-strategy fund, the majority of its market exposure and risk was held by a single Amaranth trader in the OTC derivatives market for natural gas. Amaranth had accumulated excessively large positions far into the future. Amaranth’s speculative trading wagered that the relative relationship between the price of natural gas between summer and winter months would change as a result of shortages that consumers that market prices are a result of the fundamental forces of supply and demand and not the result of manipulative or other abusive market conduct. This level of transparency certainly did not exist when APGA members began expressing their concerns at a markets workshop held in November 2005. APGA’s calls for legislation to increase natural gas market transparency were initially met with skepticism. Many viewed the lack of confidence in the marketplace expressed by APGA members as a reaction to high prices and not a valid concern. THE SOURCE | FALL 2008 , VOL. 1, ISSUE 1 21 

Table of Contents Feed for the Digital Edition of The Source - Fall 2008

The Source - Fall 2008 Contents First Person APGA Awards APGA Events Overview Up Next in THE SOURCE Grassroots Connections Climate Change Legislation Market Transparency: An Insider's View Legislative Outlook The Pipeline Marketing Matters Advertisers' Index At Last

The Source - Fall 2008

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