Summary and Background
On July 15, 2008, Senators Reid, Durbin, Schumer, Dorgan,and Murray introduced S.3268, the Stop Excessive Energy Speculation Act of 2008. This legislation, developed after consultation with consumer advocates, oil market analysts, and experts from the financial and airline industries, seeks to reduce the amount of excessive speculation in the oil markets. Specifically, the legislation would increase the resources and authority needed by the Commodities Futures Trading Commission (CFTC) to detect, prevent, and punish price manipulation and excessive speculation and give the CFTC emergency authority needed to rapidly implement the legislation. S.3268 would also strengthen the amount and quality of information available to the CFTC so that the Commission can better regulate all aspects of the energy futures markets.
In addition, the Stop Excessive Energy Speculation Act of 2008 would provide better transparency in the trading of energy derivatives by closing the "London Loophole" so that oil traders using a foreign exchange cannot manipulate the price of oil in the United States. Finally, the legislation would require the CFTC to implement position limits to restrict excessive speculation that would still allow for reasonable trading for price discovery, liquidity, and legitimate hedging purposes.
Speculative limits and transparency of offshore trading. This section would close the "London loophole" by treating oil traders using a foreign exchange as if they were trading in the U.S. for regulatory purposes, in order to stop traders from manipulating prices and speculating excessively by routing oil trades away from U.S.-based exchanges.
Working group on international regulators. This section would require the CFTC to convene a working group made up of international regulators to develop uniform reporting and regulatory standards so that excessive speculation will not harm consumers, national economies, and energy futures markets
Elimination of manipulation and excessive speculation as a cause of high oil, gas, and energy prices. This section would require the CFTC to eliminate excessive speculation while protecting and promoting legitimate hedge fund trading by adding a new definition of "legitimate hedge trading" to "trading by commercial producers and purchasers of actual physical petroleum and energy commodities for future delivery and the direct counterparties to such trades (regardless of whether the counterparties are commercial producers or purchasers)." Additionally, the section would require the CFTC to impose by rule reasonable speculative position limits on trading that is not legitimate hedge trading.
Large over-the-counter transactions. This section would give the CFTC the authority to begin collecting data on large over-the-counter traders so that it has the data necessary to determine whether price manipulation or excessive speculation is taking place. S.3268 would also require the CFTC to prepare a report on each person who enters into a "covered over-the-counter transaction."
Index traders and swap dealers. This section would require that the CFTC routinely collect detailed information from index traders and swap dealers, and be able to distinguish between the two. Finally, the bill would require a review of the CFTC’s trading practices to ensure that index traders are not adversely impacting the price discovery process.
Disaggregation of index funds and other data in energy markets. This section would require the CFTC to release data each month on the number and value of index funds in the energy markets as well as data on the speculative positions of those index funds in relation to normal market hedgers.
Additional CFTC employees. This section would authorize the CFTC to hire at least 100 full-time employees so the Commission can improve and increase its regulation and enforcement of the energy derivatives markets.
Working group on energy markets. This section would create a new interagency Working Group on Energy Markets, to be chaired by the Secretary of Energy. Other members include the Secretary of Treasury, Chairman of FERC, the CFTC, the FTC, the SEC and the EIA Administrator. The purposes of the Working Group would include: investigating the effects of speculation on energy commodities and prices critical to the energy security of the United States; recommending to the President and Congress laws and regulations necessary to prevent excessive speculation in energy commodities; coordinating the federal response to energy emergencies; and reviewing energy security considerations relevant to developments in international energy markets.
Study of regulatory framework for energy markets. This section would direct the Working Group on Energy Markets to conduct a study and report back to Congress within one year on the role of speculation in petroleum prices, and on any regulatory gaps that exist among relevant federal agencies that might hinder the effective oversight of markets critical to the energy security of the United States.
Collection and analysis of information on energy commodities. This section would amend the DOE Organization Act, to require federal agencies that provide the EIA Administrator with information necessary to identify energy-producing companies. In addition, the legislation would direct EIA to collect on a weekly basis more complete information on company-specific ownership of oil and natural gas volumes, and storage and transportation capacity owned or leased. For energy commodities physically delivered in the United States, it also would require any entity holding or controlling energy futures or swap contracts above an amount specified by the Secretary to file monthly reports with EIA detailing the quantity of physical stocks owned, physical purchase and sales agreements, and storage capacity owned or leased. Finally, the legislation would create within EIA a new Financial Market Analysis Office.
National natural gas market investigation. This section would direct Federal Energy Regulatory Commission (FERC) to undertake a study of the role of financial institutions on natural gas markets, including: trends in investment in storage and pipeline capacity; factors contributing to potential effects on wholesale natural gas prices; the character and number of related financial positions; and any international considerations the Commission deems relevant. The legislation also would reaffirm that federal agencies must cooperate with the FERC sharing data FERC the Commission deemed relevant to the investigation.
Senators Reid, Durbin, Schumer, Dorgan, and Murray introduced S.3268 on July 15, 2008.
The DPC will release information on amendments as it becomes available.
At the time of publication, the Bush Administration had not released a Statement of Administration Policy on the Stop Excessive Speculation Act of 2008.