Commodity Markets Transparency and Accountability Act of 2008

COMMODITY MARKETS TRANSPARENCY AND ACCOUNTABILITY ACT OF 2008 -- (House of Representatives - July 30, 2008)

BREAK IN TRANSCRIPT

Mr. NEUGEBAUER. Mr. Speaker, I ask unanimous consent that a letter from the Department of the Treasury and the President's Working Group be entered into the Record in connection with this bill.

The SPEAKER pro tempore. Is there objection to the request of the gentleman from Texas?

There was no objection.

July 29, 2008.
Hon. RANDY NEUGEBAUER,
House of Representatives,
Washington, DC.

DEAR CONGRESSMAN NEUGEBAUER: In response to your July 25 letter, we are providing the views of the President's Working Group on Financial Markets (PWG) concerning H.R. 6604--legislation addressing regulation of the U.S. energy futures markets.

The PWG is concerned that high commodity prices are putting a considerable strain on American families and businesses. Proper regulation of the energy futures markets is necessary to ensure that prices reflect economic factors, rather than manipulative forces. To this end, the PWG worked with Congress to develop additional regulatory authorities for the CFTC, enacted earlier this year, to regulate certain over-the-counter (OTC) energy transactions on electronic exchanges. The PWG also supports the recent steps taken by the CFTC to improve the oversight and transparency of the energy futures markets.

The PWG agencies also are participating in an Interagency Task Force on Commodity Markets that is studying the role of economic fundamentals and speculation in the commodity markets. The Task Force recently published an Interim Report on Crude Oil, which found that fundamental supply and demand factors provide the best explanation for the recent crude oil price increases. If the future work of this Task Force or the analysis of data the CFTC has recently collected from commodity market participants suggests that changes to futures market regulation are necessary, the PWG stands ready to assist lawmakers in crafting such modifications.

However, the PWG believes that bill H.R. 6604, as reported, could harm U.S. energy markets without evidence that it would lower crude oil prices. Among its several provisions, it would curtail certain types of trading in the futures markets. Such restrictions on market participation could reduce market liquidity, hinder the price discovery process, and limit the ability of market participants to manage and transfer risk. Provisions in the bill also may harm U.S. competitiveness by driving some trading to overseas markets or to more opaque trading systems at a time when policymakers are trying to encourage greater transparency. Should this legislation become law, the chances of significant unintended consequences in the markets would be high.

This legislation would give the CFTC regulatory authorities over certain OTC transactions for the first time. It has been the long-held view of the PWG that bilateral, OTC derivatives transactions do not require the same degree of regulatory oversight as exchange-traded instruments because they do not raise the investor protection and manipulation concerns associated with exchange-traded instruments. Regulating these OTC instruments could prove costly and difficult to administer by both regulators and the industry given the size and nature of the market might not provide meaningful regulatory data, and could negatively affect the ability of U.S. firms and markets to compete globally in these types of transactions.

To date, the PWG has not found valid evidence to suggest that high crude oil prices over the long term are a direct result of speculation or systematic market manipulation by traders. Rather, prices appear to be reflecting tight global supplies and the growing world demand for oil, particularly in emerging economies. As a result, Congress should proceed cautiously before drastically changing the regulation of the energy markets.

We look forward to working with Congress on these important energy market issues and appreciate your seeking our views.

Sincerely,

Henery M. Paulson, Jr.,

Secretary of the Treasury.

Ben S. Bernanke,

Chairman, Board of Governors of the Federal Reserve System.

Chrisopher Cox,

Chairman, Securities and Exchange Commission.

Walter L. Lukken,

Acting Chairman, Commodity Futures Trading Commission.

BREAK IN TRANSCRIPT

Source