Levin Bids To Crack Down On Speculation In Energy And Agricultural Markets

by Leroy Baker, Tax-News.com, New York

03 October 2008

Citing huge swings in the price of energy and food for American consumers, a trio of Democratic Senators, including Sen. Carl Levin (D - MI), have introduced legislation to prevent excessive speculation and price manipulation in US energy and agricultural markets.

The Prevent Excessive Speculation Act would make changes in four areas: authorizing speculation limits in all energy and agricultural futures markets; closing the “swaps loophole” by regulating the over-the-counter market; closing the “London loophole” that allows US crude oil traders to avoid speculation limits by trading on foreign exchanges; and requiring the Commodity Futures Trading Commission (CFTC) to revise the standards that allow traders who use futures markets to hedge their holdings to exceed the speculation limits that apply to everyone else.

Levin stated: “Energy and food prices have been on a roller coaster, taking American consumers and the American economy on an unpredictable, expensive, and damaging ride. With so much economic uncertainty, Congress needs to act now to prevent the unwarranted price spikes and crippling unpredictability that excessive speculation is causing in US energy markets. Our bill takes a measured approach to strengthen enforcement, oversight, and disclosure in all energy and agricultural markets, and give the CFTC new tools to tamp down rampant speculation.”

Co-sponsor Sen. Jeff Bingaman (D - NM) commented: “The crisis in the financial sector makes it even more imperative that we shine a bright spotlight on these energy markets. Recent events have made it all too clear that we cannot consider the securities and commodities markets in isolation, as they’ve become intrinsically linked.

Sen. Tom Harkin (D - IA), another co-sponsor, added: “This legislation takes the first crucial steps in restoring transparency to energy-related swaps markets and provides federal regulators with real tools to guard against the kinds of systemic risk, for which taxpayers and consumers alike could end up footing the bill. This legislation will clarify and solidify the authority of the CFTC to oversee energy derivatives markets to assure the consuming public that these markets are operating fairly, above board and free of price manipulation and excessive speculation.”

The Levin-Bingaman-Harkin bill is a collective effort, which includes a number of modified provisions from prior bills, including one introduced earlier this year by Senate Majority Leader Harry Reid.

In the spring of 2008, Senator Levin led a bipartisan effort to close the Enron loophole to ensure that energy contracts traded on electronic exchanges were regulated like other types of futures contracts.

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