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Senate Takes Step On Energy Oversight

 

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Senate Takes Step On Energy Oversight

By IAN TALLEY
May 16, 2008; Page C7

Federal regulators would have greater oversight of energy markets as part of the massive farm bill passed by the Senate Thursday.

Traders cited the move to close the so-called Enron Loophole — one of several measures Congress is considering to damp speculative trading in oil — as a factor behind turbulent trading in the oil markets Thursday.

Oil prices plunged by more than $4.50 a barrel in the hours after the Senate vote — with traders and analysts citing the bill as one of several factors behind the drop. By the end of the day, oil futures had recovered most of the ground lost.

Market watchers attributed the decline more to nervousness about what other regulation might be in the works, rather than simply closing the Enron loophole itself.

Lawmakers have been pushing for stronger regulation in response to volatile energy markets and record high prices, laying much blame on speculation, particularly in electronic markets, where a large portion of energy contracts trade without federal oversight.

“We’re putting the cop back on the beat, and it’s long overdue,” co-sponsor Sen. Carl Levin (D., Mich.), said as the Senate voted on the bill.

Under the measure, the Commodity Futures Trading Commission will consider trading volumes and whether contracts are being used to establish a price reference for other contracts. The language is largely similar to recommendations made by the CFTC in a review of what extra regulation the agency thought was necessary.

The provision also requires traders to maintain audit trails by supplying reports on any large trades to the CFTC, imposes record-keeping requirements, and forces electronic exchanges to monitor trading behavior and prevent manipulation.

The Enron Loophole bill doesn’t yet give authority to regulators for oversight of foreign trading on U.S. terminals, which would allow even more insight into the Intercontinental Exchange’s (ICE) operations and trading. Senators said they would specifically seek to legislate new powers to cover that oversight perhaps as early as next week.

Lawmakers are also considering proposals to increase margins — collateral needed for trading — on energy futures.

Both the ICE and New York Mercantile Exchange — where most energy trading occurs — have criticized the newly proposed legislation, saying it could harm the markets, force an exodus of trading and reduce hedging opportunities for commercial participants such as refiners and airlines.

–Brian Baskin and Gregory Meyer contributed to this article.

Write to Ian Talley at [email protected]

http://online.wsj.com/article/SB121090596109997861.html

 

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