WASHINGTON -- In part as a response to the three-year Petroleum Marketers Association of America (PMAA) effort and its recent Stop Oil Speculators campaign, the U.S. Commodity Futures Trading Commission (CFTC) late last week announced a number of initiatives to increase transparency of the energy futures markets: expanded international surveillance information for crude oil trading, increased transparency of trading in U.S. energy markets and continuation of ongoing CFTC nationwide crude oil investigation. The measures will expand the amount and quality of information received from energy traders [image-nocss] to further the integrity and oversight of the nation's futures markets.
The recent dramatic increases in the price of crude oil traded on futures exchanges make these efforts paramount, it said. The implementation of the measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud.
"All Americans are significantly affected by high energy prices—whether it's paying more at the pump, or higher costs for farmers and entrepreneurs. Today, the commission is taking important steps to ensure that the U.S. energy futures markets function properly and operate free from manipulation and abuse. With these initiatives, we are improving our oversight capabilities and bringing greater sunshine to these markets," said CFTC acting chairman Walt Lukken.
The CFTC said that it has reached an agreement with the U.K. Financial Services Authority (FSA) and ICE Futures Europe for expanded information-sharing for surveillance of energy commodity contracts with U.S. delivery points, including the West Texas Intermediate (WTI) crude oil futures contracts that trade on both the New York Mercantile Exchange (NYMEX) and ICE Futures Europe in London. While the ICE Futures Europe WTI contract is a cash-settled contract that does not require physical delivery of oil in the U.S., its price is linked to the settlement price of the NYMEX crude oil contract.
"The CFTC currently conducts surveillance of the crude oil markets, in part, using detailed trading data provided by the FSA pursuant to a 2006 information-sharing pact," said Lukken. "The agreement…will enhance the amount and quality of the information the CFTC receives regarding crude oil trading in the U.K. and will enhance the agency's already vigorous surveillance activity."
The agreement includes:
Immediately implementing expanded information-sharing to provide the CFTC with daily large trader positions in the U.K. WTI crude oil contract. Extending trader information sharing to provide crude oil large trader position data for all contract months in the WTI contract, not just the nearby months. A near-term commitment to enhance trader information to permit more detailed identification of market end users. A near-term commitment to provide improved data formatting so trading information can be seamlessly integrated into the CFTC's surveillance system. In addition to the established position management program that FSA currently requires of ICE Futures Europe, ICE Futures Europe will notify the CFTC when traders exceed position accountability levels, as established by U.S. designated contract markets, for WTI crude oil contracts.Since 2006, the FSA has provided the CFTC weekly trader information, and daily information in the final trading week, to facilitate rigorous oversight of trading in related contracts on U.S. and U.K. derivatives exchanges—specifically, the linked WTI Crude Oil contracts traded on both NYMEX and ICE Futures Europe. Currently, the U.S. regulated futures exchange, NYMEX, maintains approximately 75% of the open interest of these futures contracts while the U.K. regulated futures exchange, ICE Futures Europe, has the remaining market share of approximately 25%.
The modifications will enhance and expand information sharing between the CFTC and FSA and their respective oversight of these markets.
Also, proper transparency is important for markets to function and for regulators to police the markets to prevent manipulation and abuse, the CFTC said. "As total contract volume on U.S. futures markets has increased in recent years, all classes of market participants have grown; however, index trading is relatively new to the futures markets, and the commission believes increased transparency of such trading activity may help the CFTC determine whether adjustments to trader reporting or classification are required," Lukken said.
Accordingly, the commission is taking the following steps to gather additional information from the energy futures markets:
Improve Transparency for Energy Markets Index Trading Activity: The commission will use its existing Special Call authorities to immediately begin to require traders in the energy markets to provide the agency with monthly reports of their index trading to help the CFTC further identify the amount and impact of this type of trading in the markets. Review of Trader Reporting and Classification: The commission will develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets, and to review whether classification of these types of traders can be improved for regulatory and reporting purposes. Examine Trading Practices for Index Traders: The commission will review the trading practices for index traders in the futures markets to ensure that this type of trading activity is not adversely impacting the price discovery process, and to determine whether different practices should be employed.And in December of 2007, the agency's Division of Enforcement launched a nationwide crude oil investigation into practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts. Although the commission ordinarily conducts enforcement investigations on a confidential basis, it is taking the extraordinary step of disclosing this investigation because of current unprecedented market conditions. The specifics of the ongoing investigation remain confidential. All commission enforcement inquiries are focused on ensuring that the markets are properly policed for manipulation and abusive practices.
As reported in CSP Daily News, PMAA recently launched StopOilSpeculators.com (www.stopoilspeculators.com) as part of an initiative to tightening a loophole in commodities regulation that allows speculative traders to operate beyond the reach of federal oversight. (Click here to view full coverage.)
"Although this is positive news, there is more to be done," said PMAA in a special bulletin to its members. It "will continue the campaign to stop excessive investor speculation in the energy commodities market."
Also late last week, the Washington Oil Marketers Association (WOMA) announced that it is joining PMAA in the campaign to lower oil prices by tightening a loophole in commodities regulation that allows speculative oil traders to operate beyond the reach of federal oversight. "The data conclusively shows that the dramatic escalation in oil prices has more to do with speculators than physical supply and demand issues," said Gerry Ramm, a senior executive of Inland Oil Co., Ephrata, Wash., and 2008 treasurer of PMAA. "There is a loophole in American energy regulation that permits oil speculators to use foreign commodities exchanges to drive prices far above what they should be in a normal, free-market situation. We are suggesting that Washingtonians ask their congressional representatives to close this foreign-market loophole."
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