The New York Mercantile Exchange, Inc., the world's largest physical commodity exchange, and a subsidiary of NYMEX Holdings, Inc. (NYSE: NMX), today voiced its support for the Commodity Futures Trading Commission (CFTC) Reauthorization Act of 2007 which was approved unanimously by the Senate.
NYMEX president and ceo Officer James E. Newsome said, "NYMEX strongly supports the approach the Senate has taken on oversight of the energy markets. We believe that this legislation would provide critically necessary reforms, but would implement reform in a focused and thoughtful manner."
If adopted into law by Congress, this bill would provide much needed direct oversight of electronic over-the-counter energy trading in significant price discovery contracts (SPDCs), which are currently exempt from Commodity Futures Trading Commission (CFTC) authority. Specifically, SPDCs listed for trading on exempt markets would be subject to position limits, large trader reporting, trade monitoring, emergency action and daily publication requirements. The trading platform also would have self-regulatory responsibilities.
NYMEX supports this legislation because it would stop the regulatory arbitrage that occurred in the Amaranth debacle. Last year, NYMEX Compliance staff ordered Amaranth to reduce its positions on our regulated futures exchange in order to protect the integrity of our natural gas contract, but then Amaranth simply shifted its positions to the unregulated Intercontinental Exchange, where no position limit restrictions were in place. This shifting of positions left NYMEX exposed to Amaranth's outsized position because the NYMEX and ICE trading venues are tightly linked economically in certain contracts.
The amendments approved November 13th by the Senate also included language to reauthorize the CFTC, which we believe is vitally important. We commend the efforts of the Senators to author a workable and effective reauthorization bill, consistent with the principles-based approach contained in the landmark Commodity Futures Modernization Act of 2000. A similar bill, which included CFTC reauthorization and OTC energy trading oversight, was also passed out of the House Agriculture Committee, but has not gone to the full House for a vote. We also support that language.