Release Number 5503-08

Release: 5503-08

For Release: May 29, 2008

CFTC Announces Multiple Energy Market Initiatives

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC or Commission) today announced a number of initiatives to increase transparency of the energy futures markets. 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 recent dramatic increases in the price of crude oil traded on futures exchanges make these efforts paramount. 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.

CFTC Acting Chairman Walt Lukken and Commissioners Michael Dunn, Jill Sommers and Bart Chilton said:

“All Americans are significantly affected by high energy prices—whether it’s paying more at the pump, or higher costs for farmers and entrepreneurs. Today, the Commission is taking important steps to ensure that the U.S. energy futures markets function properly and operate free from manipulation and abuse. With these initiatives, we are improving our oversight capabilities and bringing greater sunshine to these markets.”

I. Expanded International Surveillance Information for Crude Oil Trading

The CFTC today announced that it has reached an agreement with the United Kingdom Financial Services Authority (FSA) 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 (NYMEX) and ICE Futures Europe in London. While the ICE Futures Europe WTI contract is a cash-settled contract that does not require physical delivery of oil in the U.S., its price is linked to the settlement price of the NYMEX crude oil contract.

The Acting Chairman and the Commissioners commented:

“The CFTC currently conducts surveillance of the crude oil markets, in part, using detailed trading data provided by the FSA pursuant to a 2006 information-sharing pact. The agreement announced today will enhance the amount and quality of the information the CFTC receives regarding crude oil trading in the UK and will enhance the agency’s already vigorous surveillance activity.”

The agreement includes:

    1. Immediately implementing expanded information-sharing to provide the CFTC with daily large trader positions in the UK WTI crude oil contract;

    2. Extending trader information sharing to provide crude oil large trader position data for all contract months in the WTI contract, not just the nearby months;

    3. A near-term commitment to enhance trader information to permit more detailed identification of market end users;

    4. A near-term commitment to provide improved data formatting so trading information can be seamlessly integrated into the CFTC’s surveillance system; and

    5. In addition to the established position management program that FSA currently requires of ICE Futures Europe, ICE Futures Europe will notify the CFTC when traders exceed position accountability levels, as established by U.S. designated contract markets, for WTI crude oil contracts.

Since 2006, the FSA has provided the CFTC weekly trader information, and daily information in the final trading week, to facilitate rigorous oversight of trading in related contracts on U.S. and U.K. derivatives exchanges – specifically, the linked WTI Crude Oil contracts traded on both NYMEX and ICE Futures Europe. Currently, the U.S. regulated futures exchange, NYMEX, maintains approximately 75 percent of the open interest of these futures contracts while the U.K. regulated futures exchange, ICE Futures Europe, has the remaining market share of approximately 25 percent.

Today’s announced modifications will enhance and expand information sharing between the CFTC and FSA and their respective oversight of these markets. The CFTC recognizes and appreciates the FSA’s cooperation in facilitating this improved and expanded information-sharing regime.

II. Increased Transparency of Trading in U.S. Energy Markets

Proper transparency is important for markets to function and for regulators to police the markets to prevent manipulation and abuse.

The Acting Chairman and the Commissioners commented:

“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.”

Accordingly, the Commission is taking the following steps to gather additional information from the energy futures markets:

    1. Improve Transparency for Energy Markets Index Trading Activity: The Commission will use its existing Special Call authorities to immediately begin to require traders in the energy markets to provide the agency with monthly reports of their index trading to help the CFTC further identify the amount and impact of this type of trading in the markets.

    2. Review of Trader Reporting and Classification: 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.

    3. Examine Trading Practices for Index Traders: 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, and to determine whether different practices should be employed.

III. Continuation of Ongoing CFTC Nationwide Crude Oil Investigation

In December of 2007, the agency’s Division of Enforcement launched a nationwide crude oil investigation into practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts. Although the Commission ordinarily conducts enforcement investigations on a confidential basis, the Commission is taking the extraordinary step of disclosing this investigation because of today’s unprecedented market conditions. The specifics of the ongoing investigation remain confidential. All Commission enforcement inquiries are focused on ensuring that the markets are properly policed for manipulation and abusive practices.

The Acting Chairman and the Commissioners commented:

“In addition to the CFTC’s ongoing examination of the role of fundamental economic forces and new investors in the recent commodity market price increases, the agency continues to pursue one of its primary missions – to deter, detect, and punish futures market manipulation.”

Media Contacts
Ianthe Zabel

R. David Gary

Last Updated: May 29, 2008