Regulators Probing Oil Futures Trading
May 29, 2008
In response to the dramatic increases in the price of crude oil traded on the commodity market, the U.S. Commodity Futures Trading Commission Thursday announced initiatives to increase transparency of the energy futures markets,
including announcing an ongoing investigation of possible price manipulation.
"The measures will expand the amount and quality of information received from energy traders to further the integrity and oversight of our nation's futures markets," the commission said in a press release. "The implementation of today's measures will improve oversight of the energy futures markets to ensure they reflect fundamental economic forces of supply and demand, free of manipulation and fraud."
The commission announced that since last December, the agency's Division of Enforcement has been conducting a nationwide crude oil investigation into practices surrounding the purchase, transportation, storage, and trading of crude oil. Although the commission ordinarily conducts enforcement investigations on a confidential basis, it is taking what it calls the extraordinary step of disclosing this investigation because of today's unprecedented market conditions. The specifics of the ongoing investigation remain confidential.
The commission is taking several steps to increase the transparency of trading in U.S. Energy Markets. The commission noted that as total contract volume on U.S. futures markets has increased in recent years, all classes of market participants have grown. 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.
Traders in the energy market will have to give the agency monthly reports of their index trading. The commission will develop a proposal to routinely require more detailed information from index traders and swaps dealers in the futures markets, and to review whether classification of these types of traders can be improved for regulatory and reporting purposes. And the commission will review the trading practices for index traders in the futures markets to ensure that this type of trading activity is not adversely impacting the price discovery process.
The commission also has reached an agreement with the United Kingdom Financial Services Authority and ICE Futures Europe for expanded information-sharing for surveillance of energy commodity contracts with U.S. delivery points, including the West Texas Intermediate (WTI) crude oil futures contracts that trade on both the New York Mercantile Exchange and ICE Futures Europe in London.
The commission says this agreement will enhance the amount and quality of the information the commission receives regarding crude oil trading in the UK and will enhance the agency's surveillance activity.
NYMEX Holdings, the parent company of the New York Mercantile Exchange, issued a statement commending the commission's action. NYMEX President and CEO James Newsome noted, "NYMEX has advocated for greater transparency of futures activity linked to U.S. exchanges occurring on markets regulated by foreign regulators. I applaud the initiatives put forward today, which can only enhance the CFTC's regulatory mission."