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Levin, Feinstein Introduce Legislation to Close OTC Loophole That Restricts Energy Market Oversight

WASHINGTON – Sen. Carl Levin, D-Mich., and Sen. Dianne Feinstein, D-Calif., today introduced legislation to close a major loophole in commodities laws that prevents federal regulators from policing key energy and agricultural commodity markets to prevent excessive speculation and price manipulation.  The Over-The-Counter Speculation Act would give the Commodity Futures Trading Commission (CFTC) for the first time new authority to police individual traders in non-electronic exchange over-the-counter (OTC) markets.

The legislation is designed to give the CFTC the ability to control the rampant speculation that is helping drive energy prices to record highs and drain the savings of millions of Americans.  Just today crude oil reached a new record high price of $147 per barrel.  Consumers, truckers, manufacturers, farmers, and airlines are reeling under the relentless upwards climb of oil prices, seemingly unconnected from the traditional forces of supply and demand. 

“This law would give the CFTC the authority to police energy and agriculture markets that are currently unregulated,” Senator Levin said.  “It offers a practical, workable approach that will allow the CFTC to force traders to reduce their holdings and stop excessive speculation and price manipulation.”

“There is growing concern that unregulated speculation in over-the-counter swaps markets may be contributing to the recent spikes in gas and food prices,” Senator Feinstein said. “This bill would ensure that the CFTC has a clear picture of all trading in over-the-counter commodity markets by requiring traders in these markets, including institutional investors, to follow the same reporting standards as other commodity investors. It would also give the CFTC the authority to crack down on traders to prevent excessive speculation and market manipulation. Bottom line: this bill will shine the bright light of transparency in over-the-counter energy markets.”

Levin and Feinstein authored legislation to close the Enron loophole, signed into law in May, to place electronic OTC exchanges under CFTC regulation.  However, that law does not cover trading in the broader non-electronic exchange OTC market, which includes bilateral trades through brokers, swap dealers and direct party-to-party negotiations.  Those types of trades have traditionally taken place without government oversight.

The Levin-Feinstein bill would help prevent price manipulation and excessive speculation in commodity markets in three major ways by:  strengthening CFTC oversight authority; instituting reporting requirements for large over-the-counter trades; and requiring strict recordkeeping by large traders.  The bill would expand CFTC oversight authority by giving it the authority to require large traders in the OTC market to reduce their holdings or suspend trading to prevent price manipulation or excessive speculation.  The bill would require reporting of large OTC transactions to detect possible trading abuses.  It would require the keeping of trading records by large traders to allow the CFTC to investigate past transactions and detect and punish abusive conduct.

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