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Commodity Markets Transparency and Accountability Act of 2008

Floor Speech

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Location: Washington, DC


COMMODITY MARKETS TRANSPARENCY AND ACCOUNTABILITY ACT OF 2008 -- (House of Representatives - September 18, 2008)

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Mr. MORAN of Kansas. Mr. Speaker, I rise today, in contrast to my colleagues on the committee and subcommittee, in opposition to H.R. 6604. It is an awkward position to be in because I spend more time and have a greater closer working relationship with the three members of the House of Representatives who are here today speaking from the Agriculture Committee in favor of this legislation than probably any group of Members of Congress since I came to Congress.

But I rise today in opposition to this legislation for the same reason that I did nearly a month and a half ago. This bill will do little, if anything, to bring down the price of energy. In fact, certain provisions of this bill could likely lead to less market transparency and increased market volatility. Unlike one and a half months ago, however, Congress has some data provided by the CFTC. The data shows that the commodity markets were not broken, and while crude oil went from $96 per barrel to $146 per barrel over the first 6 months of this year, the aggregate long position of index traders and swap dealers fell by 11 percent or 45,000 contracts.

As I stated back in July, I favor changes in the Commodities Exchange Act that will improve market transparency, oversight and enforcement activities. In fact, in working with the CFTC and others, I have introduced legislation, H.R. 6921, that I believe will enhance transparency in the futures markets without disrupting the markets. Based on consensus recommendations of the CFTC, the bill that I have introduced codifies the recommendations of the commission that they suggested would benefit from codification that were presented to our committee. That hearing has been referenced. It just occurred on September 11.

What my bill does not do and what this bill does, this bill on the House floor, is redefine a bona fide hedging transaction to prohibit the ability of legitimate market participants from utilizing the market, push domestic traders overseas where CFTC will have little oversight and contains cumbersome and contradictory requirements that will overburden the CFTC staff and lead to little useful information.

In July I said this bill was put together quickly, in fact I thought too quickly and went too far. The information provided by the CFTC at our hearing on September 11 in my opinion confirmed that fact. Given that this bill was defeated on suspension and it includes provisions that go beyond the scope of the commission's recommendations, one would think that we would now take that bill back to committee and craft a more precise product rather than bringing the same product to the House floor. We asked for more information, we got more information, and yet the crux of this legislation didn't change.

A well-crafted bill needs to provide additional transparency, oversight authority, and not exclude legitimate market participants or reduce market liquidity. One of the problems of this legislation, as I said, is it will reduce market transparency. This is because certain provisions, like the provision dealing with the foreign boards of trade that seek direct access to U.S. markets, will push traders to foreign markets. Rather than giving the CFTC a better picture of markets to prevent fraud and manipulation, it will actually restrict the ability of the CFTC to see that market.

In addition, the bill errantly attempts to define a ``bona fide hedging transaction.'' In its current form, section 8 will exclude legitimate commercial market participants from properly hedging risk. This will cause immediate disruption of the markets as the legitimate market participants are forced out of the market. It will reduce market liquidity and increase price volatility.

I am also concerned with provisions in this bill that require routine reporting and potential use of position limits in over-the-counter transactions that are ``fungible.'' ``Fungible'' is not defined and suggests that a significant amount of CFTC transactions would be implicated by this section.

I am especially concerned about the authority of section 14 which gives the CFTC the opportunity to impose position limits on over-the-counter trades. This is a problem because the OTC trades are nonstandardized contracts. Unlike standardized contracts traded on designated contract markets, OTC trades are often tailored to manage a specific company's risk in a market. And unlike a contract traded on a designated contract market, an OTC trade is made with a single counterparty. On a designated contract market, unlike many OTC trades, a clearinghouse is the counterparty to every contract and can facilitate liquidation of a position. In an OTC trade, if one party is in violation of a position limit and the other is not, liquidation of a position will adversely affect the party that is in compliance, again causing greater market volatility and increased cash prices of a commodity because of a disruption in commercial market participant's risk management strategy.

I think this bill has some technical problems that will harm price discovery and risk management strategies. It should be returned to committee where we address, again, the root cause of high energy prices.

The goal must be to do no harm, but this goal is not met in this legislation.

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