![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
CFTC seeks greater energy market transparency
The US Commodity Futures Trading Commission (CFTC) has launched a series of new initiatives with which it hopes to increase the transparency of the energy futures markets.
Under the new measures, the CFTC has expanded surveillance of overseas trading of crude oil contracts with US delivery points, increased its scrutiny of index products and has disclosed for the first time that it launched a nationwide crude oil investigation into practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts in December 2007.
The Commission hopes that the new measures will expand the amount and quality of information received from energy traders as it aims to boost its oversight of US futures markets in the wake of surging oil prices. Nymex West Texas Intermediate for July delivery reached a record high of $135.09 in trading last week while the December 2015 contract hit $136.99/bbl.
The CFTC has expanded international surveillance information for crude oil trading under an agreement with the UK’s Financial Services Authority (FSA) and ICE Futures Europe. The agreement allows for greater information sharing for surveillance of energy commodity contracts with US delivery points, including the WTI contracts that trade on the Nymex and IntercontinentalExchange (ICE).
The agreement will mean that ICE Futures Europe will provide greater transparency in its markets than other US futures exchanges, according to ICE chairman and CEO Jeffrey Sprecher. “Prudent regulatory information sharing and cooperation, rather than enactment of onerous and duplicative regulatory schemes, will ensure that these vital markets remain transparent and do not move offshore,” he said.
Since 2006, the FSA has provided the CFTC weekly trader information and daily information in the final trading week – specifically, the linked WTI crude oil contracts traded on both Nymex and ICE Futures Europe. Currently the exchange under US regulation, Nymex, maintains approximately 75% of the open interest of these futures contracts while UK regulated ICE Futures Europe has the remaining market share of approximately 25%, according to the CFTC.
Secondly, the commission has sought greater transparency in US markets by increasing scrutiny on index products. The CFTC will use its existing 'Special Call' authorities to immediately begin to require traders in the energy markets to provide the agency with monthly reports of their index trading to help the CFTC further identify the amount and impact of this type of trading in the markets. It will routinely require more detailed information from index traders and swaps dealers in the futures markets and review their trading practices in attempt to quantify its affect on the market overall.
“As total contract volume on U.S. futures markets has increased in recent years, all classes of market participants have grown,” said CFTC acting chairman, Walt Lukken.
“However, index trading is relatively new to the futures markets, and the Commission believes increased transparency of such trading activity may help the CFTC determine whether adjustments to trader reporting or classification are required.”
Thirdly, the CFTC also revealed that it is investigating the crude oil markets as a result of what it calls “today’s unprecedented market conditions.”
The Commission has recently denied that such prices rises are the result of market speculators or manipulative forces, but the implementation of today’s new measures demonstrates the pressure the Commission is under to address the situation as politicians seek scapegoats.
Following a May 20 hearing called to examine the effect of institutional investors and hedge funds on food and energy price inflation, Homeland Security and Governmental Affairs Committee Chairman Senator Joe Lieberman said “index speculators are responsible for a big part of the commodity price increases, and we in Congress ought to do the best we can to protect the public interest in an effort to bring food and energy prices down."
The expanded international surveillance information includes:
1. Immediately implementing expanded information-sharing to provide the CFTC with daily large trader positions in the UK WTI crude oil contract;
2. Extending trader information sharing to provide crude oil large trader position data for all contract months in the WTI contract, not just the nearby months;
3. A near-term commitment to enhance trader information to permit more detailed identification of market end users;
4. A near-term commitment to provide improved data formatting so trading information can be seamlessly integrated into the CFTC’s surveillance system; and
5. In addition to the established position management program that FSA currently requires of ICE Futures Europe, ICE Futures Europe will notify the CFTC when traders exceed position accountability levels, as established by U.S. designated contract markets, for WTI crude oil contracts.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Energy
Energy Risk Commodity Rankings 2024: markets buffeted by geopolitics and economic woes
Winners of the 2024 Commodity Rankings steeled clients to navigate competing forces
Chartis Energy50
The latest iteration of Chartis’ Energy50 ranking
Energy trade surveillance solutions 2023: market and vendor landscape
The market for energy trading surveillance solutions, though small, is expanding as specialist vendors emerge, catering to diverse geographies and market specifics. These vendors, which originate from various sectors, contribute further to the market’s…
Achieving net zero with carbon offsets: best practices and what to avoid
A survey by Risk.net and ION Commodities found that firms are wary of using carbon offsets in their net-zero strategies. While this is understandable, given the reputational risk of many offset projects, it is likely to be extremely difficult and more…
Chartis Energy50 2023
The latest iteration of Chartis' Energy50 2023 ranking and report considers the key issues in today’s energy space, and assesses the vendors operating within it
ION Commodities: spotlight on risk management trends
Energy Risk Software Rankings and awards winner’s interview: ION Commodities
Lacima’s models stand the test of major risk events
Lacima’s consistent approach between trading and risk has allowed it to dominate the enterprise risk software analytics and metrics categories for nearly a decade
2021 brings big changes to the carbon market landscape
ZE PowerGroup Inc. explores how newly launched emissions trading systems, recently established task forces, upcoming initiatives and the new US President, Joe Biden, and his administration can further the drive towards tackling the climate crisis