The head of the
U.S.Commodity Futures Trading Commission took his case for imposing speculative
trading limits on energy products to Europe
Wednesday where he urged foreign regulators to use all of their existing powers
to police the markets.
In a speech in Paris
before the International Energy Agency, CFTC Chairman Gary Gensler spoke about
the benefits of position limits, saying they can "enhance liquidity by
promoting more market participants" and help prevent a select few traders
from dominating the market.
"To effectively regulate the energy markets requires cooperation on the
parts of the CFTC, the Securities and Exchange Commission and foreign
regulators," Gensler said in prepared remarks.
"It is incumbent upon the CFTC and other regulators to use our existing
authorities to promote market integrity and transparency and to guard against
fraud, manipulation and other abuses."
Gensler made his speech just as his agency is gearing up to likely impose
sweeping new buying limits on energy futures products and possibly scale back
or eliminate the exemptions that big banks and index funds rely on to
circumvent those limits.
Additionally, the CFTC is also seeking expanded new powers from Congress so it
can also impose limits across all markets, and not just on futures exchanges.
Part of that new authority could entail obtaining new powers to impose limits
on certain contracts traded on foreign exchanges in an effort to close the
so-called London Loophole, which critics claim has allowed U.S. traders to
circumvent regulations.
"The United States,
like the rest of the world, benefits from a regulated market economy,"
Gensler said. "We will continue to work with international regulators,
Congress and the administration to comprehensively regulate over-the-counter
derivative markets."
Critics of the CFTC's plans to press forward with new trading limits say the
agency should not act until it wins authority from Congress to oversee the
over-the-counter trading. They also fear that tough new regulations in the U.S. could
cause business to migrate overseas.
Provisions in the Obama administration's draft proposal on derivatives would
give the CFTC broad new powers over foreign exchanges by requiring them to
register with the agency if they hope to offer U.S. traders direct electronic
access to their trading platforms.
That proposal goes well beyond the efforts the CFTC has already taken internally
to close the so-called London Loophole. The efforts have focused solely on
regulating foreign contracts offered to American-based traders, which settle
against the prices of contracts traded on U.S. futures exchanges.
Currently only one foreign exchange- IntercontinentalExchange's (ICE) ICE
Futures Europe - offers several energy contracts that settle against futures
traded on the New York Mercantile Exchange.
For the past three years, the CFTC has worked with ICE and U.K. regulators
to impose reporting requirements and trading limits on those select contracts. Most
recently, the CFTC tweaked that agreement so it will be able to do on-site
inspections at the London-based exchange.
Separately, the CFTC also this month entered another cooperative agreement with
the U.K.'s
Financial Services Authority to beef up the cross-border regulation of
clearinghouses.
Gensler did not offer his thoughts about the Obama administration's tough
proposal for overseeing foreign exchanges in his speech Wednesday, but he urged
regulators to think about the benefits of position limits.
"It is our job to make certain that futures markets work for the broad
public," he said.