Thursday, December 3, 2009

Turf War: "Waxman, Markey eye derivatives bill changes"

Inside baseball on policy stuff can look boring as all get out but man can you make a lot of money if you understand what's going on. From The Hill:
Two senior House Democrats are proposing changes to financial reform legislation heading for the floor as soon as next week, warning that the bill would weaken federal oversight of power markets.

Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) and Rep. Ed Markey (D-Mass.) say legislation that toughens regulation of derivatives markets would simultaneously “disrupt” Federal Energy Regulatory Commission oversight.

Markey, in his statement prepared for a committee hearing today, said he and Waxman want the bill changed to “fully preserve” FERC’s current authority over certain types of electricity market contracts....MORE
Risk has some of the power industry's arguments:

Power sector concerned about regulatory overlap

...Both the Treasury and Congress are working on legislation to tighten regulation of the OTC derivatives markets following the collapse of Lehman Brothers and American International Group in 2008 and the resulting adverse impact on global financial markets.

Legislative proposals include setting capital and margin requirements and giving regulators such as the CFTC and the Securities and Exchange Commission (SEC) oversight of OTC markets.

However, representatives from the electric power sector said the legislation should be worded to exclude day-ahead, real-time and financial transmission rights products. At present, these markets are overseen by regional transmission organisations (RTO) or independent system operators (ISO) under tariffs approved by Ferc, or the Public Utility Commission of Texas for the Electric Reliability Council of Texas region....MORE
Futures Magazine has the opposing view, the testimony of CFTC Chairman (and former Goldman honcho, he made partner at age 30) Gary Gensler:

Gensler testifies on OTC regulation

Below is testimony by CFTC Chairman Gary Gensler before the House Committee on Energy and Commerce on over the counter derivatives regulation on Dec. 2.

Good afternoon Chairman Markey, Ranking Member Upton and members of the Subcommittee. Thank you for inviting me to testify regarding the regulation of over-the-counter (OTC) derivatives, particularly with respect to energy markets.

Last year’s crisis marked a defining moment in our nation’s history. The crisis was a call to action for the Administration, Congress and market regulators to ensure that we do all we can to prevent the financial system from so undermining the economy and the wellbeing of the American public. Though there are certainly many causes of the crisis, I think most would agree that the unregulated OTC derivatives marketplace played a central role.

CFTC Regulatory Regime

Before I get to OTC derivatives, I will take a moment to discuss what the CFTC does and our current oversight of energy futures.

The CFTC is responsible for regulating certain types of markets for risk management contracts, also known as derivatives. Many of these contracts, including futures on interest rates, currencies, wheat, energy and other commodities, are traded on regulated, transparent exchanges. Other types of derivatives, called swaps or over-the-counter derivatives, are traded between two parties and, for the most part, are currently excluded by statute from regulation.

With regard to the trading of futures contracts and commodity options, the CFTC has thorough processes to ensure that exchanges have procedures in place to protect market participants and ensure fair and orderly trading, free from fraud, manipulation and other abuses. Exchanges and trading venues are where buyers and sellers meet, prices are negotiated and discovered, trades are affirmed and transaction prices and volumes are reported in a timely manner....MORE