CFTC Extends Regulation of Electronic Energy Markets

Posted by Michael Hoven on April 27, 2010 at 12:07 pm

The CFTC ruled to regulate seven electronic natural gas contracts traded on the IntercontinentalExchange (ICE). (image: money.cnn.com)

The Commodity Futures Trading Commission (CFTC) ruled on Tuesday to extend its regulation to seven natural gas contracts that are traded electronically on the IntercontinentalExchange (ICE), reported Reuters. The CFTC concluded that the contracts played a significant role in setting the price of a commodity, which means they merit the CFTC’s oversight and could be subject to position limits.

The CFTC’s decision to increase regulation of these electronic contracts is separate from its proposal to establish position limits on energy commodities, including heating oil futures. However, the public comment period on that proposal concluded on Monday, and the CFTC’s move to extend its oversight into electronic markets like ICE could be a clue that the CFTC remains bent on tightening regulation of all trading of energy commodities.

Electronic markets are typically subject to lighter regulation than traditional futures exchanges (like the New York Mercantile Exchange, or NYMEX), says Dow Jones Newswires, but a 2008 law granted the CFTC the ability to regulate contracts traded on electronic energy markets if it determines that the contract plays a role in setting price.

On Tuesday the CFTC deliberated over 24 energy contracts, and decided that only seven met the criteria for increased oversight. The contracts that did not warrant oversight were other natural gas contracts on ICE and on the Natural Gas Exchange, and one carbon contract on the Chicago Climate Exchange.

This ruling by the CFTC to bring additional energy contracts under its purview adds momentum to the push for financial reform taking place now in the Senate and to the newfound regulatory zeal in the SEC and the CFTC itself. Most end users of commodities like heating oil desire curbs on speculation in commodity markets, which should lead to stable, and quite possibly lower, heating oil prices.