Friday, August 21, 2009

U.S. Regulators Tighten Their Grip On Futures Trading

. Friday, August 21, 2009

By stockOzone team

U.S. financial regulators on Thursday tightened their oversight of international energy futures trading as part of an ongoing bid to thwart market manipulation that could lead to volatile oil prices.

The U.S. Commodity Futures Trading Commission and U.K. Financial Services Authority agreed to step up their joint surveillance of energy futures trading.

At the same time, the CFTC imposed new mandates on the London-based exchange ICE Futures Europe that are designed to shed more light on trading in U.S.-linked energy contracts, such as those for West Texas Intermediate crude oil.

Both moves come as the CFTC is taking steps to restrict “excessive speculation” on U.S.-based commodity exchanges that some lawmakers have blamed for wild swings in oil and gas prices.

“We must effectively utilize all existing powers to ensure that futures markets remain free of manipulation, fraud or other market abuses,” CFTC Chairman Gary Gensler said. “Achieving this goal requires a coordinated international response.”

Under the agreement between the CFTC and the U.K. Financial Services Authority — the main regulator of ICE Futures Europe — both agencies will be able to visit and examine exchanges in the U.S. and the United Kingdom. The agencies will share information on disciplinary actions against traders and exchanges in their jurisdiction.

The agreement also sets out a plan for coordination on any “emergency” orders, such as those to halt trading.

Financial Services Authority Chairman Lord Turner said the pact would “facilitate coordinated action, where appropriate” between the two regulators.

The accord builds on an earlier 2006 agreement and applies to U.S.-linked futures contracts, which are settled based on the prices of contracts traded on U.S. exchanges.

The CFTC's related move to impose new requirements on ICE Futures Europe would ensure that the panel has detailed data on trading of U.S.-linked futures contracts on the London-based exchange.

The CFTC's new mandates are conditions tied to the commission's continued grant of permission for ICE Futures Europe to offer American traders access to its electronic trading system within the United States.

Emergency obligations
In exchange for the access, the CFTC is requiring ICE Futures Europe to follow its lead on emergency actions that apply to trading in U.S.-linked contracts.

For instance, if the CFTC suspends trading of crude oil futures contracts in the U.S., ICE Futures Europe would be obligated to do the same thing with any similar contract.

The CFTC also is giving ICE Futures Europe four months to begin providing the commission with trade execution and audit trail data for all U.S.-linked contracts. Additionally, the exchange will be required to give the U.S. regulator copies of disciplinary notices involving U.S.-linked contracts and provide copies of rules and notices before they are published.

The conditions build on earlier requirements the CFTC imposed on ICE Futures Europe last year as part of the terminal access arrangement. For instance, under the arrangement, the London exchange has imposed U.S.-style position limits that cap the number of contracts that traders can hold at certain times.

David Peniket, the president of ICE Futures Europe, said in a statement that the exchange would “continue to work closely with regulators around the world to ensure the effective operation of global oil markets.”

Some lawmakers on Capitol Hill have said the foreign trading of U.S.-linked energy contracts, as well as excessive speculation in the domestic markets, helped drive up the price of oil last year.

Disclosure: Author does not own any of the stocks discussed here.

Bookmark and Share


Post a Comment

Visit to discover Indian blogs