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Public Statements

Letter To The Honorable Gary Gensler, Chairman of the U.S. Commodity Futures Trading Commission

A move to corral speculators trading in oil contracts and driving up the price of gas at the pump picked up steam today as 13 U.S. senators joined together to press regulators for immediate action.

The senators are pushing for tougher regulation because new data shows oil trades by speculators have jumped 35 percent since the latest round of civil unrest began in late January in North Africa and then the Middle East. During that same period, U.S. gas prices have soared by almost 40 percent.

The senators on Thursday joined U.S. Sen. Al Franken (D-Minn.) in an effort to rein in the speculators who are contributing to inflated oil prices. The lawmakers sent a letter to Gary Gensler, chairman of the Commodity Futures Trading Commission, asking him to use a new law that gives tools to limit excessive speculation in so-called futures markets.

"Minnesotans are already struggling in this economy and I'm working every angle I can to make sure gas prices don't continue to go unchecked," said Sen. Franken. "That's why I'm urging regulators to exercise the authority they were given by the Wall Street Reform Act to clamp down on the damage oil speculators are causing and help stem the rise in prices at the pump."

Speculators can currently buy $100 worth of oil futures with only $6 down, while investors in stocks put down 50%. The Commission has the authority to call for higher margin requirements from exchanges where oil futures and various other commodities are traded.
"New margin requirements could take effect as soon as July, but the CFTC must begin the rulemaking process now," the lawmakers wrote. "Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital."
Joining Sen. Franken on the letter are Sens. Bill Nelson (D-Fla.) Maria Cantwell (D-Wash.), Barbara Boxer (D-Calif.), Jeff Merkley (D-Ore.), Patty Murray (D-Wash.), Robert Menendez (D-N.J.), Mark Begich (D-Alaska), John D. Rockefeller IV (D-W.Va), Carl Levin (D-Mich.), Barbara Mikulski (D-Md.), Sherrod Brown (D-Ohio) and Bernie Sanders (I-Vt.), who characterized the increase in speculation as "a boon for Big Oil but a bust for consumers."

The Honorable Gary Gensler
Chairman
U.S. Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581

Dear Chairman Gensler,

There is strong evidence the recent surge in gas prices has little to do with the fundamental supply and demand for oil. Government data confirm that oil speculators are driving the price increase. We urge you to restore integrity to our energy markets by exercising the CFTC's authority to require higher margin levels for speculative oil futures contracts.

Speculators are seizing on recent political turmoil in North Africa and the Middle East to drive energy prices to unwarranted levels. The commitments of Traders reports reveal that speculators have flooded into the market in recent weeks. Since protests began in Egypt on January 25, 2011, money managers have increased their long positions in NYMEX West Texas Intermediate crude oil futures contracts by more than 35 percent, or the equivalent of 75 million barrels of oil. Oil speculators have increased long positions on the Intercontinental Exchange by nearly 50 percent. At the same time, actual true hedgers have reduced their long positions in the oil futures markets.

The loser in this game of oil speculation is the American consumer. Rising oil futures translate into high gas prices, and that means Americans have less money in their pockets to pay for basic needs.

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, we empowered your Commission with a number of new tools to rein in excessive speculation and prevent market failures. In addition to mandating speculative position limits, we removed the broad statutory restriction that prohibited the CFTC from imposing higher margin requirements. Section 736 authorizes the CFTC to require higher margin requirements in order to protect the financial integrity of the future trading markets. Now is the time to exercise that authority. New margin requirements could take effect as soon as July, but the CFTC must begin the rulemaking process now. Higher margin levels would reduce incentives for excessive speculation by requiring investors to back their bets with real capital.

For the same reason we don't let pharmaceutical companies approve their own drugs, we shouldn't let futures exchanges self-regulate by setting their own margin requirements. This hand's-off, self-regulatory approach has led to a fundamentally inequitable system in which ordinary investors are required to post 50 percent margin to buy a stock, but Wall Street
traders post only six percent to purchase a risky and volatile futures contract.

We urge you to act quickly to raise the margin requirements imposed on speculative oil contracts. The margin increase should only apply to speculators, not true hedgers. This is consistent with current exchange policies that apply different margin requirement's for investors and bona fide hedgers. With your leadership, we can discourage damaging and excessive speculation in the oil markets and bring down gas prices.

Sincerely,

Bill Nelson
Maria Cantwell
Bernard Sanders
Sherrod Brown
Barbara Boxer
Al Franken
Jeff Merkley
Patty Murray
Robert Menendez
Mark Begich
John D. Rockefeller IV
Carl Levin
Barbara A. Mikulski


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