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WASHINGTON – U.S. Senator Saxby Chambliss (R-Ga.) today received testimony during a joint Senate Agriculture Committee and Senate Appropriations Subcommittee on Financial Services and General Government on the Commodity Futures Trading Commission (CFTC) budget and regulatory oversight.  Walt Lukken, acting CFTC Chairman, testified on behalf of the agency, which is charged with regulating futures markets including energy futures.  Sen. Chambliss noted the joint hearing is timely and appropriate considering the dramatic increase in energy prices, specifically oil, and mounting criticism over potential market manipulation.

 

“There have now been several pieces of legislation introduced to address speculation in the energy markets and there have been several hearings held in many different Senate committees on the topic,” said Sen. Chambliss, Ranking Republican Member of the Senate Agriculture Committee.  “I have heard several Senators speak on the Senate floor about this matter and based upon the facts I have seen it is very irrational to blame the Acting Chairman of the CFTC for $4.00 gasoline.  We should not rush to legislate an uninformed solution, particularly when we might create more problems by driving speculators into markets for which the CFTC receives no trading data and has no ability to monitor.” 

 

Sen. Chambliss noted that in the case of West Texas Intermediate Crude Oil (WTI) contracts on the New York Mercantile Exchange, the proportion of positions held by commercial participants - those who can physically deliver crude oil or accept delivery of crude oil - and non-commercial positions - those held by speculators - has not changed over the past two years.  Speculation in this contract, by non-commercial participants, has held steady at nearly 20 percent.

 

“If we are to fault market speculators for current gas prices, we cannot blame it on their increased market participation when we compare their level of participation to that of commercial participants,” said Sen. Chambliss during the hearing.  “Rather, we need to allow the CFTC to implement those initiatives they have just recently announced and complete their on-going investigation.  With this critical information, we can then make a real assessment of any role speculators are playing.”

 

Recently, critics have claimed “excessive speculation” is occurring on “unregulated” foreign exchanges.  However, any exchange in any country can list the WTI contact for trading, without any approval from the CFTC.  For instance, because WTI crude is physically delivered in the U.S., it does not mean the U.S. can prevent foreign boards of trade from listing and allowing traders to trade the contract on their platforms.  The “no-action” letter process, whereby foreign boards of trade seek to accommodate the CFTC’s demands prior to being allowed to offer contracts in the U.S., actually helps the CFTC ensure that they receive adequate data to monitor the activities of these foreign exchanges.

 

“The example most often used by several of my colleagues is the trading of the West Texas Intermediate Crude contract on the London-based exchange, ICE Futures Europe,” said Chambliss.  “The CFTC, through ‘no action’ relief, allows ICE to offer this contract to U.S. traders.  However, in exchange, ICE Futures Europe has agreed to notify the CFTC when traders exceed position accountability levels established by U.S. exchanges for the WTI crude oil contract.  Additionally, the United Kingdom’s regulatory authority, the Financial Services Authority, has been supplying the CFTC with requested surveillance data for several years.”

 

The CFTC, designed to operate as a five-person body, will review this data and determine if there is any manipulation occurring.  Congress approved a provision included in the 2008 farm bill, now law, reauthorizing the CFTC to operate through 2013.  The bill also includes measures to increase federal oversight authority over electronic trading facilities offering contracts that are determined to be performing a significant price discovery function and increases reporting requirements for such entities. 

 

Audio of Sen. Chambliss’ remarks made during the hearing can be found at http://agriculture.senate.gov today.