Liquidity, not regulation, is key to avoid manipulation, says CFTC

Regulators should avoid the temptation to implement over zealous regulation of the energy derivatives market, and instead encourage the development of liquidity, if market manipulation is to be avoided. That was the message delivered by Sharon Brown-Hruska, Commissioner of the US Commodity Futures Trading Commission (CFTC), at the Energy Risk conference in Houston today.

Following Enron’s demise, and the California power crisis, there has been a backlash against OTC energy trading in the US that is largely unwarranted, Brown-Hruska said. US politicians such as Senator Dianne Feinstein (Democrat, California), for example, have unsuccessfully sought to re-regulate OTC derivatives trading.

The CFTC has so far fined 20 major energy companies around $200 million in civil monetary penalties related to false price reporting and attempted manipulation of natural gas