OTC energy derivatives regulations to tighten

US regulators could be one step closer to achieving their aim of closing the ‘Enron loophole’ that exempts electronic energy exchanges such as the Atlanta-based Intercontinental exchange (ICE) from regulatory oversight.

ICE chief executive Jeffrey Sprecher spoke out in favour of a stronger role for the Commodity Futures Trading Commission (CFTC) at a second hearing on excessive speculation in the natural gas market, led by a US senate permanent subcommittee on investigations.

“ICE strongly supports several of the recommendations of the permanent subcommittee report, particularly the proposed increase in the CFTC's budget and the enhancement of its access to trading information. We also support the advancement of regulatory certainty by eliminating the ‘Enron Loophole’, although that provision has nothing to do with ICE,” said Sprecher. However, he deemed a complete overhaul of the current regulatory structure to be “neither warranted nor advisable”.

The hearings were scheduled following a subcommittee investigation into Amaranth’s natural gas trading records for 2006 from the New York Mercantile Exchange (Nymex) and ICE. The investigation showed that, when CFTC-regulated Nymex told Amaranth to reduce its positions in certain Nymex natural gas contracts, Amaranth took advantage of ICE’s regulation and trading limit-exempt status by moving contracts there. Neither Nymex nor the CFTC was aware of Amaranth's true natural gas holdings and trades, the report finds.

The permanent subcommittee report recommends that congress should eliminate the ‘Enron Loophole’ and ensure that exempt commercial markets, such as ICE, should be required to comply with the same statutory obligations as designated contract markets such as Nymex, and should be regulated in the same manner by the CFTC.