Energy Policy Act of 2003 - Continued
ENERGY POLICY ACT OF 2003CONTINUED
Mr. COCHRAN. Mr. President, the Senate is considering the amendment offered by the distinguished Senator from California, Mrs. Feinstein, to the Energy bill now before the Senate. This amendment seeks to transfer, in effect, regulatory authority from the body that now has that authority, the Commodity Futures Trading Commission, to the Federal Energy Regulatory Commission.
There are several good reasons why the Senate should not adopt this amendment and force that transfer of regulatory authority. First, the Federal Energy Regulatory Commission has special responsibilities but this will give them new and different responsibilities where there is no experience, there is no body of law or regulatory decisionmaking on which to base the assumption that this kind of regulation or this regulation carried out by this Commission would be of any better character or type than that which would be exercised by the Commodity Futures Trading Commission.
The Commodity Futures Trading Commission has been operating for some time now and has actually shown that it is capable of taking action to prevent abuses and illegal activities that can occur in these trading markets and in the energy trading area as well.
The Feinstein amendment would give the Federal Energy Regulatory Commission authority over areas that are currently regulated by the Commodity Futures Trading Commission and would require, in addition, regulation of energy derivatives. These are complex instruments. They are used to transfer risks among traders and they are important tools in the energy markets today.
Congress considered in the past, when it took up the Commodity Futures Modernization Act of 2000 several years ago, regulating these instruments. But it decided not to do so. The Federal Energy Regulatory Commission has no current responsibility in regulating derivatives.
It seems to me that when you look to see who has been carrying out duties now complained about by some Senator, you can find that the Commodity Futures Trading Commission has a record of taking legal action against companies such as Enron, El Paso, and others regarding energy market problems. The Commodity Futures Trading Commission has recovered millions of dollars in fines from these companies, and it has several ongoing investigations in this area, and more charges are possible.
To transfer now the regulatory authority to a different commission and purport to take away the authority from the Commodity Futures Trading Commission is going to create disruption in ongoing investigations and actions that are taken to discipline this market and make it more predictable and trustworthy.
The Senator from California has suggested that the amendment she has offered is needed to prevent wash trades. These are trades that are fictitious. A company will buy a commodity and then sell it creating the impression that this is a legitimate trade. It establishes a price. It establishes volume. But it is fictitious trading. It shouldn't have that effect but it does.
The Commodity Futures Trading Commission has taken action to discourage that activity and to punish that activity. It has specific authority to do that under the Commodity Exchange Act. The Commodity Futures Trading Commission has brought several actions under that authority in the last several years. Its authority to take this kind of action has been upheld by two decisions from U.S. appeals courts.
Just this year, the Commodity Futures Trading Commission has recovered tens of millions of dollars from merchant energy traders for so-called wash trades and false trades.
Another claim that is made in support of the amendment of the Senator from California is that because the exempt commercial markets are not regulated under the Commodity Exchange Act that they have no regulatory oversight. That is just not true. Those markets are required by statute today to have electronic audit trails. They are required by statute to keep records for 5 years. They are required to be subject to the Commodity Futures Trading Commission's antifraud and antimanipulation authorities. They are subject to special call examinations by the Commodity Futures Trading Commission. To suggest there are no regulatory requirements on those exempt commercial markets is just not true.
It is also claimed that the Feinstein amendment would impose capital requirements on exempt commercial markets. It would require capital requirements. That doesn't necessarily solve anything. Capital requirements aren't imposed now on the Chicago Mercantile Exchange, or the New York Mercantile Exchange, or the Chicago Board of Trade. They are not viewed as necessary. Those markets have been functioning without capital requirements. To now impose them on exempt commercial markets is inappropriate and unnecessary.
Capital requirements or other exempt commercial markets would be difficult to establish. They would change on a regular basisweekly probablybecause of new contracts being offered, and change financial positions of participants. Capital requirements would impose significant costs and there are no identifiable benefits.
The amendment would also impose large trader reporting on exempt commercial markets. Large trader reporting works on retail futures exchanges with standardized contracts but would not work on exempt commercial markets. They don't have the same type of standardization. Large trader reporting on exempt commercial markets could actually lead to misleading information being provided to the public. Large trader reporting is used for market surveillance in retail futures markets.
The Commodity Futures Trading Commission's statutory authority for exempt commercial markets is after the fact, antifraud and antimanipulation enforcement, and is inconsistent with a large trader reporting scheme.
In closing, the Senate has to take into account the fact that the leading figures in our Government who are responsible for enforcement and managing the departments that understand financial markets and the impact they have on our economy and
on our place in the world economy are urging that the Senate not adopt the Feinstein amendment.
This is a letter which was put on every Senator's desk in the last several minutes signed by John W. Snow, Secretary of the Department of the Treasury, Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System, William H. Donaldson, Chairman, U.S. Securities and Exchange Commission, and James E. Newsome, Chairman of the Commodity Futures Trading Commission.
With the permission of the Chair, I will read the letter.
It is addressed to Senator Crapo of Idaho and Senator Miller of Georgia.
Thank you for your letter of June 10, 2003, requesting the views of the President's Working Group on Financial Markets [PWG] on proposed Amendment No. 876
That is the Feinstein amendment
to S. 14, the pending energy bill.
As this amendment is similar to a proposed amendment on which you sought the views of the PWG last year, we reassert the positions expressed in the PWG's response dated September 18, 2002, a copy of which is enclosed. The proposed amendment could have significant unintended consequences for an extremely important risk management marketserving businesses, financial institutions, and investors throughout the U.S. economy. For that reason, we believe that adoption of this amendment is ill-advised.
We would also point out that, since we wrote that letter last year, various federal agencies have initiated actions against wrongdoing in the energy markets. As you note, the CFTC has brought formal actions against Enron, Dynegy, and El Paso for market manipulation, wash (or roundtrip) trades, false reporting of prices, and operation of illegal markets. The Securities and Exchange Commission, the Federal Energy Regulatory Commission, and the Department of Justice have also initiated formal actions in the energy sector. Some of these actions have already resulted in substantial monetary penalties and other sanctions. These initial actions alone make clear that wrongdoing in the energy markets are fully subject to the existing enforcement authority of federal regulators.
The Commodity Futures Modernization Act of 2000 brought important legal certainty to the risk management marketplace. Businesses, financial institutions, and investors throughout the economy rely upon derivatives to protect themselves from market volatility triggered by unexpected economic events. This ability to manage risks makes the economy more resilient and its importance cannot be underestimated. In our judgment, the ability of private counterpart surveillance to effectively regulate these markets can be undermined by inappropriate extensions of government regulation.
It is clear from the letter that the Senate has received no response to inquiries from Senator Crapo and Senator Miller clearly explaining the dangers in adopting the Feinstein amendment.
At the appropriate time it will be our intention to move to table the Feinstein amendment and ask for the yeas and nays at that time. I hope Senators will carefully review the information we now have available on each Senator's desk and vote to table the Feinstein amendment.
Madam President, I suggest the absence of a quorum.