Today, the Commodity Futures Trading Commission (CFTC) delivered to Congress a report that includes recommendations to increase the oversight of some trading activity on electronic trading facilities known as Exempt Commercial Markets (ECMs).
"This report is designed to provide recommendations that strike a delicate balance between the appropriate level of market oversight and transparency while promoting market innovation and competition to ensure that these markets remain on U.S. soil," said CFTC acting chairman Walt Lukken. "I want to thank my fellow Commissioners for their efforts as we worked to present substantive and unified recommendations on this complex, yet critical issue. The Commission presents this report, developed in consultation with the President’s Working Group on Financial Markets, to continue to inform the on-going debate in Congress."
The Commission’s legislative recommendations include establishing the following for certain ECM contracts that serve a significant price discovery function:
1. Large Trader Position Reporting – comparable to reporting requirements that currently apply to contracts traded on regulated exchanges;
2. Position Limits and/or Accountability Level Regime – comparable to those that currently apply to similar contracts traded on regulated exchanges;
3. Self-Regulatory Oversight – designed to detect and prevent manipulation, price distortion, and disruptions of the delivery or cash-settlement process; and
4. Emergency Authority – to prevent manipulation and disruptions of the delivery or cash-settlement process.
In addition to the legislative changes proposed, the Commission also intends to: (1) establish an Energy Markets Advisory Committee to conduct public meetings on issues affecting energy producers, distributors, market users and consumers; and (2) work closely with the Federal Energy Regulatory Commission 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.
The Commission’s recommendations follow its September 18th, 2007 hearing that examined the statutory and regulatory structure governing ECMs, especially those engaged in trading energy contracts. Witnesses at the hearing included representatives from regulated exchanges, ECMs, consumer groups, and industry groups.
Congress is currently considering reauthorization of the Commodity Exchange Act, which is the CFTC’s governing statute. CFTC acting chairman Lukken will testify about this report and other reauthorization issues before the House Agriculture Subcommittee on General Farm Commodities and Risk Management later today.
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