Two Fed Regulators Aim to Rope in Trades

By Published On: September 4, 2009

In a move that is likely to affect energy trading, the Commodities Futures Trading Commission and the Securities and Exchange Commission met September 2 to “harmonize” their securities regulation. We’re set on getting over-the-counter trades “under regulation,” said Gary Gensler, CFTC chair. Both natural gas and electricity are traded--sometimes in public venues, some in private. For instance, the California Independent System Operator has its wholesale bids for ramping up and backing down generation, as well as for ancillary services like voltage support, in its own market. The Obama administration is pushing for more strict regulation of trades. Under its proposal, the CFTC would narrow the trading floor to a single, regulated, “desk” and impose higher costs on those who choose to trade outside that arena. Federal regulators say that such a set up would inhibit gaming the system and prevent deals like the ones that brought financial institutions to near collapse last fall. Energy traders adamantly oppose the plan. Currently, the two federal agencies split up regulation--the CFTC covers commodities and derivatives and the Securities and Exchange Commission securities and stocks. They overlap in enforcement, according to the government. Based on a similar meeting hosted by the SEC September 3, regulators apparently agree that staff should be expanded in order to handle the often exotic trading vehicles. Regulators agree too that they should send their staffs to “fraud school” in order to approach increased control over trades. In a related federal move, the Federal Energy Regulatory Commission issued a “state of markets” report September 2. In it, regulators noted that the decrease in energy trading volume in California was “particularly evident” at the end of 2008.

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