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Commodity Market Regulation
Bubbles, Froth, and Facts: The Impact of Index Funds on Commodity Futures Prices (February 2010)Two economics professors have published a paper analyzing commodity index trader position data from 2004 to 2009. The professors, Dwight Sanders of Southern Illinois University and Scott Irwin of University of Illinois at Urbana-Champaign, found that a large increase in commodity index positions occurred in select commodity markets. However, that increase took place well in advance of the 2007-2008 boom in commodity prices, the professors said. They also said that statistical tests on the data did not reveal any link between commodity index activity and commodity futures prices.
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FIA welcomes the CFTC’s announcement of public hearings on how best to accomplish its mission of ensuring the “fair, open and efficient functioning” of futures markets. FIA has consistently supported efforts by the CFTC to ensure the integrity of the price discovery process, and we want to help Chairman Gensler continue to achieve this goal. FIA would be concerned by any measures to bar legitimate participants from these markets or that would make it less efficient for U.S. corporations to use futures as a tool for managing price risk. FIA hopes the CFTC's hearings will address public concerns about the impact of speculation on futures market prices without causing these markets to become less fair, open and efficient.
The FIA is the leading trade organization for the futures industry. Its membership includes the world’s largest futures brokers as well as leading derivatives exchanges from more than 20 countries. For more information, please contact Will Acworth (wacworth@futuresindustry.org) at (202) 466-5460.
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| FIA Testifies on Draft Derivatives Bill before House Agriculture Committee  Washington, D.C.—Feb. 3, 2009—FIA President John Damgard testified before the House Agriculture Committee on Feb. 3 regarding the discussion draft of the Derivatives Markets Transparency and Accountability Act of 2009. Damgard expressed support for those provisions strengthening the CFTC’s market surveillance capabilities, deterring price manipulation, and encouraging competition. Damgard warned, however, that many of the bill’s provisions would drain market liquidity, make hedging more costly, curb innovation and discourage trading in the U.S. He expressed especially strong opposition to the provisions that would greatly expand the scope of speculative position limits, mandate clearing of all OTC transactions, and ban naked credit default swaps.
 Please click here to download PDF of testimony
Please click here to download PDF of section-by-section analysis |
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| FIA Defends Hedge Exemption for OTC Dealers The Futures Industry Association on June 16, 2009 filed a comment letter with the Commodity Futures Trading Commission urging the agency to preserve its hedge exemptions for dealers in over-the-counter derivatives. The FIA commended the CFTC for its efforts to protect the integrity of the price discovery process, but said a repeal of these exemptions would not achieve the agency’s goal of promoting greater transparency and accountability. The FIA suggested that the CFTC should instead adopt a different approach based on determining which OTC derivatives affect price discovery in the futures markets, using the data collected through its special calls. This approach would be more consistent with the regulatory reform plan being developed by the Obama administration as well as recent testimony by CFTC Chairman Gary Gensler, the letter noted. Click here for full .pdf version |
| FIA Testifies Before House Agriculture Subcommittee on CFTC ReauthorizationFIA President John Damgard testified at a Sept. 26 hearing of the House Agriculture Subcommittee on General Farm Commodities and Risk Management on the reauthorization of the Commodity Futures Trading Commission. The testimony emphasized three general points: the FIA endorses CFTC reauthorization, supports the CFTC's exclusive jurisdiction, and opposes major changes to the Commodity Exchange Act. |
| FIA Comments to FTC on Market ManipulationThe Futures Industry Association, Managed Funds Association, CME Group, Inc., Intercontinental Exchange, Inc., and National Futures Association (collectively, the “Futures Group”) filed a comment letter on May 20, 2009 to the Federal Trade Commission concerning the Prohibition of Energy Market Manipulation Rule. To view the letter please click on the link. Click here for the PDF (4MB) |
FIA Comments on FTC Market Manipulation RulemakingOn June 23, 2008, FIA along with the CME Group, NYMEX and MFA filed a joint comment letter with the Federal Trade Commission which addressed the FTC's implementation of section 811 of the Energy Independence and Security Act of 2007. Section 811 gives the FTC antimanipulation authority over wholesale purchases and sales in crude oil, gasoline and petroleum distillates. The FTC must adopt rules prohibiting certain misconduct to implement its authority. Our letter urged the FTC to respect CFTC exclusive jurisdiction over futures markets and to coordinate its anti-manipulation rules and enforcement efforts in the wholesale cash markets with those of the CFTC.
 Click here for full .pdf version of letter
Click here for full .pdf version of Memorandum of Law
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| FIA Testifies on Credit Derivatives ClearingWashington, D.C.—Dec. 8, 2008—FIA President John Damgard discussed several issues related to the clearing of credit derivatives in testimony today before the U.S. House Agriculture Committee. Damgard made three main points in his written testimony. First, the interests of clearing firms must be recognized in the proper structure of any successful CDS clearing operation. Second, government agencies should not make CDS clearing a “jurisdictional football.” Third, merging the Commodity Futures Trading Commission and the Securities and Exchange Commission will not answer the financial market regulatory concerns raised by Congress in recent months. Download PDF version of Damgard testimony Hearing schedule and list of witnesses
http://agriculture.house.gov/hearings/schedule.html |
Washington, D.C.—Oct. 31, 2008—A coalition of futures exchanges, brokers and market users have filed an amicus brief in federal court challenging the authority of the Federal Energy Regulatory Commission to prosecute manipulation in the natural gas futures market. The brief is one of several filed by the group in various court proceedings seeking to defend the exclusive jurisdiction of the Commodity Futures Trading Commission over U.S. futures trading. The group consists of the Futures Industry Association, the CME Group, the Managed Funds Association and the National Futures Association. The case arose when the FERC charged Brian Hunter, the former head of natural gas trading at the hedge fund Amaranth Advisors, with violating FERC rules against manipulation. Hunter went to court to block the action, arguing that the natural gas markets fall under the exclusive jurisdiction of the Commodity Futures Trading Commission. In July, the U.S. District Court for the District of Columbia dismissed Hunter’s claims. The case is now on appeal before the U.S. Court of Appeal for the District of Columbia. The coalition’s brief, which was filed on Oct. 31, 2008, outlines the legislative history of and public policy rationale for the CFTC’s exclusive jurisdiction, and raises several arguments against FERC’s claim that manipulation does not fall within the CFTC’s exclusive jurisdiction. The brief warns that the FERC’s “assault” on the exclusive jurisdiction provision, if allowed to stand, could pave the way for other agencies such as the Securities and Exchange Commission, the Federal Trade Commission, the Agriculture Department and the Environmental Protection Agency to claim jurisdiction over futures trading. “If FERC is allowed to prosecute futures manipulation, U.S. futures trading will become subject to multiple regulators and crushing regulatory costs,” the brief asserts. Click here for the brief |
A coalition of futures industry organizations has filed a "friend of the court" brief in the U.S. Court of Appeals for the District of Columbia Circuit challenging the legal authority of the Federal Energy Regulatory Commission to prosecute claims that Amaranth Advisors manipulated the price of natural gas futures traded on a futures exchange. The brief, which was filed on Oct. 15, argues that Congress granted exclusive jurisdiction over futures trading to the Commodity Futures Trading Commission. The brief asserts that allowing the FERC enforcement action to proceed would create conflicting standards regarding what constitutes market manipulation, and warns that this would subject futures trading to "multiple regulators and crushing regulatory costs." The case arose when the FERC filed a suit against Amaranth in 2007 alleging that the hedge fund had manipulated natural gas futures prices on the New York Mercantile Exchange and asserting jurisdiction because of the impact on prices for physical natural gas. The CFTC also has filed an enforcement action against Amaranth charging the hedge fund with attempted manipulation of the natural gas futures market. The coalition consists of the CME Group, Futures Industry Association, Managed Funds Association, and National Futures Association. For a copy of the petition please click here |
| FIA Urges House of Representatives to Oppose HR 6604Washington, DC - Sept. 18, 2008 - The Futures Industry Association today sent a letter to Democratic and Republican leaders in the U.S. House of Representatives urging them to oppose H.R. 6604, the Commodity Markets Transparency and Accountability Act of 2008. The FIA said the legislation would harm the futures industry and the U.S. economy, and warned that it would add stress to the financial system. Link to the PDF version of the letter Download acrobat Reader |
| FIA Statement on CFTC Index Trader ReportWashington, D.C.—Sept. 11, 2008—The Futures Industry Association today issued the following statement from FIA President John Damgard regarding the Commodity Futures Trading Commission’s staff report on commodity swap dealers and index traders: First, we applaud the CFTC's efforts to deepen the public’s understanding of the dynamics of the commodity futures markets. Today’s report sheds more light on how these markets function, and that is good for everyone who uses these markets and the public at large. |
| Financial Associations Warn Congress to Avoid "Counterproductive" Changes to Commodity Futures RegulationSix trade associations have issued a joint letter warning members of Congress that “hastily enacted initiatives” to limit speculation in commodity futures markets could lead to several harmful consequences, including the “exodus” of speculators to other markets. The six associations, which represent investment companies and pension funds as well as banks and brokers, endorsed efforts to increase funding for the Commodity Futures Trading Commission, and urged Congress to recognize the “critical role” of speculation in the commodity markets. The six associations consist of the Financial Services Roundtable, the Futures Industry Association, the International Swaps and Derivatives Association, the Investment Company Association, the Managed Funds Association, and the Securities Industry and Financial Markets Association. Click here to download full .pdf version of the joint letter |
| FIA Participates in Coalition Defending CFTC's Exclusive Jurisdiction in Amaranth CaseWashington, D.C.--Oct. 3, 2007--A broad coalition of institutions and industry organizations today filed a "friend of the court" brief in the US District Court for the Southern District of New York regarding the Commodity Futures Trading Commission's lawsuit against Amaranth Advisors. The coalition consists of the Futures Industry Association, the CME Group, the New York Mercantile Exchange, the Managed Funds Association and the International Swaps and Derivatives Association. The brief argues that the court should grant Amaranth's motion to stay an enforcement action undertaken by the Federal Energy Regulatory Commission on the basis of the CFTC's exclusive jurisdiction over futures, which was granted by Congress to prevent overlapping jurisdiction from causing legal uncertainty. |
Nymex Questions CFTC Policy on Foreign TerminalsThe New York Mercantile Exchange has asked the CFTC to prevent IntercontinentalExchange, its chief rival, from moving ahead with plans to list unleaded gasoline and heating oil futures on its ICE Futures subsidiary. ICE Futures, originally known as the International Petroleum Exchange, is a U.K. registered exchange that makes its products available in the U.S. through a foreign terminals no action letter. In an April 13 letter to CFTC Chairman Reuben Jeffery, Nymex General Counsel Christopher Bowen argued that the policy was designed to provide access to foreign futures contracts, and that the ICE contracts should be treated instead as U.S. products that directly involve physical energy markets in the U.S. "Such contracts should be traded only on a futures market that is directly regulated by the CFTC," Bowen said.
» Nymex Letter to CFTC |
» SEC Letter regarding Short Option Value Charge |
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