CANTWELL, SNOWE ASK CFTC TO REVOKE ICE NO-ACTION LETTER
“It is clear that the Commission has the legal authority to immediately require ICE Futures to show cause as to why its U.S. based contracts should not be subject to the same level of oversight and transparency that are applied to fully regulated U.S. exchanges,” the senators wrote. “We strongly believe that the Commission must expeditiously review the current oversight over Foreign Boards of Trade that are selling American products and develop policies that provide, at the very least, comparable oversight.”
Last year, Cantwell and Snowe sent a letter to the CFTC calling for the Commission to require greater scrutiny of foreign trading of
[The full text of the letter below]
July 8, 2009
Commodity Futures Trading Commission
Dear Chairman Gensler and Commissioners Dunn, Sommers, and Chilton:
Last year we wrote to the Commodities Futures Trading Commission requesting that it use its authority to directly regulate all
We reminded the Commission that Congress has given it the authority and responsibility to prevent fraud, manipulation, and excessive speculation in
Supply and demand indicators do not seem to support this rapid rise in price. Specifically, according to the Energy Information Administration,
During this same time, we have seen commodity index funds pour an estimated $40 billion back into commodity indices raising total investment from around $87 billion up to over $140 billion at the beginning of June. This resulted in the buying of between 125 and 155 million barrels of crude oil in the futures markets raising index speculators’ stockpile of crude oil futures from approximately 435 million barrels on January 1, up to more than 575 million barrels by the end of May.
It concerns us that the current run-up in oil prices is strikingly similar to the oil price spike of 2008. At that time, large financial firms were investing significant resources into the oil futures market and Commission data from that period showed that prices were more closely aligned to speculative activities than to the fundamental laws of supply and demand. Clearly, other factors influence the price of oil, yet these facts raise questions regarding the role of noncommercial speculators in the futures markets.
Rising oil prices are threatening to derail comprehensive efforts to restore the health of the nation’s economy and are harming oil consumers during the worst economic climate since the Great Depression in the 1930s. This provides the Commission a new opportunity to live up to its statutory responsibility to protect the
The WTI contract is trading on ICE Futures in direct competition with the New York Mercantile Exchange’s (NYMEX) signature oil futures contract, which is regulated by the Commission and subject to the Commodity Exchange Act’s (CEA) eighteen core principals. It is estimated that trading volumes on ICE Futures for WTI has grown to 30 percent of the trading on NYMEX. Data provided to Congress revealed that 60 percent of all trades on ICE Futures originate in the
Last summer, following our previous letters, the Commission and the
We believe the Commission’s abdication of oversight responsibility has been based upon two flawed assumptions. The first is that the lax regulatory structure of the FSA is comparable to the Commission’s and sufficient to police this critical market sector. On this first point we strongly believe that the lack of the CEA’s eighteen core principals within FSA regulations does not meet a comparable standard and the level of information sharing remains inadequate. Second, arguments have been advanced that there are legal impediments to the Commission enforcing
“[the] Commission may adopt rules and regulations proscribing fraud and … require registration with the Commission by any person located in the
It is clear that the Commission has the legal authority to immediately require ICE Futures to show cause as to why its
We strongly believe that the Commission must expeditiously review the current oversight over Foreign Boards of Trade that are selling American products and develop policies that provide, at the very least, comparable oversight. In addition, we strongly believe that if further cooperation with FSA is not possible to meet a comparable regulatory standard, that the Commission has the power to provide direct oversight and regulation of these markets selling American products. Accordingly, we request that the Commission require ICE Futures to show cause why it should not register as a
We look forward to working with you to meet our shared goals of protecting American consumers and ensuring a fair and well-functioning energy futures market. Please respond to us in writing by July 21, 2008 as to actions the Commission has taken in response to this request.
Senator Maria Cantwell
Senator Olympia Snowe
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