The US Commodity Futures Trading Commission (CFTC) on Thursday announced a number of initiatives to increase transparency of the energy futures markets, in order to prevent opportunities for price manipulation and fraud at a time of record high oil prices.
The measures announced by the CFTC will expand the amount and quality of information received from energy traders, in a bid to further the integrity and oversight of the US futures markets.
They include more international surveillance for crude oil trading, efforts to increase market transparency, and a continuation of the CFTC's ongoing, but hitherto secret, nationwide crude oil investigation.
The Commission argued that the recent dramatic increases in the price of crude oil traded on futures exchanges "make these efforts paramount".
The new measures therefore, are designed to ensure that energy markets reflect "fundamental economic forces of supply and demand, free of manipulation and fraud," it said.
Commenting on the initiative, CFTC Acting Chairman Walt Lukken and Commissioners Michael Dunn, Jill Sommers and Bart Chilton stated that:
“All Americans are significantly affected by high energy prices — whether it’s paying more at the pump, or higher costs for farmers and entrepreneurs."
"Today, the Commission is taking important steps to ensure that the US energy futures markets function properly and operate free from manipulation and abuse. With these initiatives, we are improving our oversight capabilities and bringing greater sunshine to these markets.”
As part of the initiative, the CFTC announced that it has reached an agreement with the United Kingdom Financial Services Authority (FSA) and ICE Futures Europe for expanded information-sharing with regard to surveillance of energy commodity contracts with US delivery points, including the West Texas Intermediate (WTI) crude oil futures contracts that trade on both the New York Mercantile Exchange (NYMEX), and ICE Futures Europe in London.
While the ICE Futures Europe WTI contract is a cash-settled contract that does not require physical delivery of oil in the US, its price is linked to the settlement price of the NYMEX crude oil contract.
The Acting Chairman and the Commissioners commented:
“The CFTC currently conducts surveillance of the crude oil markets, in part, using detailed trading data provided by the FSA pursuant to a 2006 information-sharing pact. The agreement announced today will enhance the amount and quality of the information the CFTC receives regarding crude oil trading in the UK and will enhance the agency’s already vigorous surveillance activity.”
Under the new transparency drive, the CFTC will use its existing Special Call authorities to immediately begin to require traders in the energy markets to provide the agency with monthly reports of their index trading, in order to help the CFTC further identify the amount and impact of this type of trading in the markets.
It will also develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets, and review the trading practices for index traders in the futures markets to ensure that this type of trading activity is not adversely impacting the price discovery process.
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