WASHINGTON - In a big win for the U.S. futures industry, new Senate legislation unveiled on Wednesday would not impose higher margins on oil traders but would still aim to rein in excessive speculation in energy markets.
Futures markets participants had feared that earlier legislation introduced by Sen. Byron Dorgan to boost significantly the amount of money, or margin, that speculators would have to put up to trade oil futures would make it into a anti-speculation bill from Senate Democratic leaders.
Some lawmakers blame the sharp run-up in crude oil and gasoline prices on rampant speculation, while others say the increase simply reflects tight supply and strong demand.
Dorgan, a Democrat from North Dakota, had sought to hike margins for speculators to 25 percent of the value of the oil traded from the current margin of 5 percent to 7 percent. But when Senate Majority Leader Harry Reid of Nevada unveiled the bill on Wednesday, he left out the higher margins, a move that wins the support of more lawmakers.
Higher margins would have made it more expensive to trade in U.S. futures markets such as the New York Mercantile Exchange. Futures industry officials had warned that if margins were significantly raised, the United States would lose business to overseas exchanges or less-regulated U.S. markets.
Still, Reid's bill would require the Commodity Futures Trading Commission to distinguish between true hedgers, like airlines, that buy and sell oil futures to offset the risk of high fuel prices, and speculators who bet on the price of oil and never intend to take physical delivery of the crude.
"This bill will address the rising cost of gasoline in the short term, prevent Wall Street traders from gaming the oil markets and ensure that American consumers are paying a fair price at the pump," Reid said on the Senate floor.
The CFTC would have to convene a panel of experts to help determine the tough position limits imposed on speculators, which would restrict the number of oil futures contracts an individual speculator could control in a delivery month.
Swaps dealers and commodity index traders would have to report trading to the CFTC, which would ensure index traders were not hurting price discovery in commodity futures markets.
The legislation also requires foreign exchanges that trade contracts similar to those listed in U.S. markets to publish comparable daily trading information and adopt position limits that match requirements at American futures exchanges.
The Federal Energy Regulatory Commission also would have to investigate the role of speculators in natural gas markets and submit its findings to Congress within 270 days.
CFTC Commissioner Bart Chilton backed the bill, saying it "will help uncover manipulation, excessive speculation, and most importantly, protect American consumers and businesses."
U.S. airlines, hit by skyrocketing jet fuel costs they blame on speculators, threw their support behind Reid's bill.
"This bill creates a much-needed distinction between legitimate hedgers and those who are in the market for purely speculative purposes," said Jim May, chief executive of the industry's leading trade group, the Air Transport Association.
Reid said he hopes to bring the bill to the Senate floor for a vote "in the near future." A Reid aide said it may come up for a vote late this week or early next week.
Reid said the bill "is not perfect," but attempts to rein in hedge funds and other speculators, whose trading he said accounts for about 30 percent of the cost of gasoline.
Dorgan said the bill would clamp down on the "orgy of speculation" in energy futures.
Republicans will push to amend the speculation bill with language that expands offshore oil drilling and allows oil shale development in the Midwest.
Futures markets participants had feared that earlier legislation introduced by Sen. Byron Dorgan to boost significantly the amount of money, or margin, that speculators would have to put up to trade oil futures would make it into a anti-speculation bill from Senate Democratic leaders.
Some lawmakers blame the sharp run-up in crude oil and gasoline prices on rampant speculation, while others say the increase simply reflects tight supply and strong demand.
Dorgan, a Democrat from North Dakota, had sought to hike margins for speculators to 25 percent of the value of the oil traded from the current margin of 5 percent to 7 percent. But when Senate Majority Leader Harry Reid of Nevada unveiled the bill on Wednesday, he left out the higher margins, a move that wins the support of more lawmakers.
Higher margins would have made it more expensive to trade in U.S. futures markets such as the New York Mercantile Exchange. Futures industry officials had warned that if margins were significantly raised, the United States would lose business to overseas exchanges or less-regulated U.S. markets.
Still, Reid's bill would require the Commodity Futures Trading Commission to distinguish between true hedgers, like airlines, that buy and sell oil futures to offset the risk of high fuel prices, and speculators who bet on the price of oil and never intend to take physical delivery of the crude.
"This bill will address the rising cost of gasoline in the short term, prevent Wall Street traders from gaming the oil markets and ensure that American consumers are paying a fair price at the pump," Reid said on the Senate floor.
The CFTC would have to convene a panel of experts to help determine the tough position limits imposed on speculators, which would restrict the number of oil futures contracts an individual speculator could control in a delivery month.
Swaps dealers and commodity index traders would have to report trading to the CFTC, which would ensure index traders were not hurting price discovery in commodity futures markets.
The legislation also requires foreign exchanges that trade contracts similar to those listed in U.S. markets to publish comparable daily trading information and adopt position limits that match requirements at American futures exchanges.
The Federal Energy Regulatory Commission also would have to investigate the role of speculators in natural gas markets and submit its findings to Congress within 270 days.
CFTC Commissioner Bart Chilton backed the bill, saying it "will help uncover manipulation, excessive speculation, and most importantly, protect American consumers and businesses."
U.S. airlines, hit by skyrocketing jet fuel costs they blame on speculators, threw their support behind Reid's bill.
"This bill creates a much-needed distinction between legitimate hedgers and those who are in the market for purely speculative purposes," said Jim May, chief executive of the industry's leading trade group, the Air Transport Association.
Reid said he hopes to bring the bill to the Senate floor for a vote "in the near future." A Reid aide said it may come up for a vote late this week or early next week.
Reid said the bill "is not perfect," but attempts to rein in hedge funds and other speculators, whose trading he said accounts for about 30 percent of the cost of gasoline.
Dorgan said the bill would clamp down on the "orgy of speculation" in energy futures.
Republicans will push to amend the speculation bill with language that expands offshore oil drilling and allows oil shale development in the Midwest.
