Press Releases

Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.) and Olympia Snowe (R-Maine) today urged the Commodity Futures Trading Commission (CFTC) to ensure adequate market protections for the trading of U.S. energy future contracts on international markets.

Senators Feinstein and Snowe have been the lead sponsors of legislation to help prevent manipulation, excessive speculation and fraud in electronic energy markets. Since 2000, the trading of electronic commodities, like oil or natural gas, has been exempt from federal regulation under the so-called “Enron Loophole.”

Last week, the Farm Bill conferees reported that the legislation sponsored by Senators Feinstein, Snowe and others to close the Enron Loophole would be included in the final Farm Bill conference report.

In a letter to CFTC Acting Chairman Walter Lukken, Senators Feinstein and Snowe today expressed concern that when the Enron Loophole is finally closed, there will be a lack of comparable protections in place for trading of U.S. energy futures on international markets.

Following is the text of the letter sent to the CFTC today by Senators Feinstein and Snowe:

May 7, 2008

The Honorable Walter Lukken
Acting Chairman
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581

Dear Mr. Lukken:

Last week, Farm Bill negotiators reached an agreement to extend Commodity Futures Trading Commission (CFTC) oversight to electronically traded energy futures contracts, thereby closing the Enron Loophole.  We have worked for more than five years to close this loophole, and we appreciate the work that you and the CFTC staff put into this effort after you became acting Chairman.  This was a major step toward improving energy market oversight in the United States.

We write to inquire about expanding energy trading beyond our borders, which we are concerned could emerge as a new loophole in our nation’s market oversight regime.  We are not confident comparable regulation and monitoring of trading are robust enough to prevent manipulation in American oil markets. 

Over the past few years, CFTC has allowed American energy traders to trade energy commodity futures contracts on European exchanges, even for United States based energy products.  In particular, today there is significant trading of West Texas Intermediate (WTI) Crude Oil, United States Gasoline, and Northeast Heating Oil futures contracts in London.  CFTC allows this because it has recognized the British regulations enforced by the Financial Services Authority (FSA) as “comparable” to American regulation, and because it receives data from FSA on trading activity in U.S. based contracts.

We are concerned that CFTC has declared FSA regulation comparable, even though FSA regulations do not reflect some of the core principles of the Commodity Exchange Act.  Specifically, exchanges in London are not required to monitor daily trading to prevent manipulation, publish daily trading information, or impose and enforce position limits that prevent excessive speculation. 

We appreciate that CFTC Chairman Reuben Jeffery III signed a Memorandum of Understanding (MOU) with FSA Chairman Callum McCarthy in 2006.  The MOU establishes a framework for the CFTC and FSA to share information that the respective authorities need to detect potential abusive or manipulative trading practices that involve trading in related contracts on U.K. and U.S. derivatives exchanges.  Upon signing the MOU, CFTC asserted: “Sharing necessary information on linked markets will provide the regulators with a more complete view of these markets for oversight purposes.”

Nearly two years after this MOU was established, we would appreciate an update on the nature of the oversight currently preventing manipulation in American energy contracts traded abroad.  Specifically, we would appreciate it if you would answer the attached questions on market oversight. 

Market manipulation by Amaranth and Enron demonstrates that bad actors will use loopholes in our regulations if we leave them open.  Allowing the trading of American commodities in a foreign jurisdiction presents the potential for a significant loophole in oversight, that we believe we must close. 

We look forward to your prompt answers to these important questions and to working with you to establish robust oversight in America’s energy markets.  If you have any questions, your staff may contact Matthew Nelson on Senator Feinstein’s staff or Patrick Woodcock on Senator Snowe’s staff.


Dianne Feinstein      Olympia J. Snowe
United States Senator     United States Senator

Questions Regarding International Market Oversight

  1. Under the Commodity Exchange Act, CFTC and U.S. exchanges must limit speculation.  These speculation limits impose firm caps on the size of a trader’s position.  Has the CFTC asked FSA to impose speculation limits when U.S. commodities are traded under FSA’s jurisdiction?  
  2. If CFTC imposes speculation limits and FSA does not, the two regulatory schemes are not the same.  Which system, in CFTC’s view, is more robust?  Which system is more likely to prevent manipulation?  Which system is more likely to catch a manipulator?
  3. In 2006, Amaranth Advisors, LLC, evaded enforcement of speculation limits on the NYMEX Henry Hub Natural Gas contract by shifting its positions to the ICE Henry Hub Natural Gas contract, which lacked similar limits.  We are concerned that a similar behavior could now happen with WTI Crude Oil contracts.  If CFTC instructed an oil trader to reduce the size of his NYMEX WTI Crude Oil position, what would prevent that trader from shifting his position to a WTI Crude Oil contract traded in London, where there are no limits?
  4. CFTC has received data on WTI Crude Oil contracts traded in London since 2006.  Please review this data to determine how many traders have held positions in a London-based WTI Crude Oil contract that would have exceeded either NYMEX WTI contract accountability levels or speculation limits.  Please determine what percentage of the time at least one trader held positions in London-based WTI Crude Oil contracts that would have exceeded accountability levels or speculation limits on NYMEX.
  5. What percentage of the WTI crude oil contract – America’s most important oil contract – is now traded on an exchange outside of CFTC’s jurisdiction?  Has that percentage been growing?  Based on this history, what percentage does the CFTC forecast will be traded outside of our jurisdiction in 2010, 2015, and 2020?
  6. Please explain what steps CFTC has taken to integrate position data from WTI Crude Oil Contracts in London and New York so that the system to limit excessive speculation in crude oil contracts remains effective. 
  7. Does FSA keep data on the amount of speculation in its markets and publish a weekly report, as CFTC does?
  8. What evidence can you present to indicate that FSA is providing robust oversight of oil contracts whose delivery point is in the United States?  How many cases has FSA brought for manipulation?  How many traders has FSA investigated?  How many FSA staff members are assigned to monitor these markets?  
  9. Please explain what steps CFTC is taking to monitor American energy commodities traded abroad.  How many times has CFTC referred a suspected manipulation case to FSA?  How many CFTC staff members are assigned to monitor these markets?