Commodity Futures Trading Commission (CFTC) has advocated
greater oversight of the OTC market regulation for the agency
on a number of levels.
A report, issued by CFTC on 24 October, recommends several
initiatives for so-called exempt commercial markets (ECMs)
including - large trader reporting; position limits and, or an
accountability level regime; self-regulatory oversight and
emergency authority for the agency designed to prevent market
manipulation and disruptions of the delivery or cash-settlement
The report, which emerged in the wake of an 18 September
hearing on the issue of ECMs, provides recommendations to
Congress which is seriously considering new legislation to
police OTC energy markets.
CFTC acting chairman, Walt Lukken, said the goal of the
initiatives is to maintain the balance of appropriate
regulation and transparency with market innovation and
The reality is that some ECM contracts are serving a
significant price discovery function and leads the commission
to conclude that changes to the CEA [Commodity Exchange Act]
may be necessary, Lukken told the House Agriculture
Subcommittee on General Farm Commodities and Risk Management on
24 October during an address regarding reauthorisation.
CFTCs report was met with strong support from New York
Mercantile Exchange (Nymex) and Intercontinental Exchange
We support the proactive efforts of CFTC and the
President's Working Group to provide regulatory certainty for
the oversight of OTC markets, said ICE Chairman and CEO
Jeff Sprecher in a statement. The spirit of their
recommendations is largely consistent with the views we have
expressed in several testimonies this year. Such a solution
recognises and addresses the complexities of OTC markets and
preserves the significant economic and utility benefits of a
properly functioning market.
Sprecher added that ICE adopted daily position reporting in its
primary OTC markets a year ago and welcomed the self-regulatory
Nymex, which has long been a critic of ICEs ECM status,
agreed with CFTCs approach as well and reiterated its
contention that ECMs warrant a higher degree of CFTC
oversight and regulation.
In addition to the legislative changes proposed, CFTC has
further plans which include efforts to establish an Energy
Markets Advisory Committee to discuss issues affecting energy
producers, distributors, market users and consumers. CFTC also
vowed to work closely with the Federal Energy Regulatory
Commission (FERC) to educate and develop best practices for
utilities and others who use Nymex settlement prices as hedging
vehicles and benchmarks in pricing their energy products.
Just how Congress will implement new OTC legislation is
unclear. Some in Washington believe that such legislation will
be included in the ongoing Farm Bill legislation process rather
than as part of CFTC reauthorization. There is still no firm
timeline on passage of the Farm Bill or reauthorisation.
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