March 9, 2010
The Commodity Futures Trading Commission has a long history of cooperation with its regulatory partners, including the Federal Energy Regulatory Commission. As we have with many agencies that regulate cash markets, we must continue to work closely to ensure that there are no gaps in the oversight of products where both agencies’ jurisdiction intersects. Over the past decade, energy markets have evolved considerably, and will continue to do so, irrespective of the jurisdictional lines established by Congress. I agree with Chairman Gensler’s testimony that creating wholesale exemptions for specific products may prove to be ill-suited to oversee future products or markets.
Section 4(c) of the Commodity Exchange Act provides the CFTC with the authority to exempt certain products from its jurisdiction, as appropriate. This authority, if maintained, could be utilized to provide an exemption of specific futures contracts, such as the financial transmission rights contracts. Over the past weeks, I have undertaken an effort to learn about financial transmission rights products. I have met with CFTC staff and industry participants as well as FERC staff responsible for the oversight of these financial transmission rights products. Based on these meetings, it is my opinion that financial transmission rights products are integral to our nation’s electricity markets and FERC is uniquely qualified to guard against manipulation of the pricing of this product. If the CFTC were to exercise its exemptive authority, there would be no gap in oversight, as FERC would provide the necessary oversight role.
While Chairman Gensler and I may agree on some of the concepts embraced in the proposed legislative framework, areas where we may differ are obscured by the use of terms that are not yet fully defined. In particular, determining where the line is drawn between “customized” and “standardized” is critical to advancing the legislative discussion. This distinction must consider that the products commercial end-users use to manage risk do not necessarily perform a real-time price discovery function as they have unique price and credit terms. Mandating exchange trading and clearing of these products would add cost, without the benefit of improving price transparency. That being said, I fully support expanded utilization of central clearing, with limited exemptions provided to commercial end-users and increased transparency through the reporting of all trades to a trade repository. However, I cannot embrace all of Chairman Gensler’s testimony until the crucial definitional provisions are fully defined.
Last Updated: June 14, 2010