New rules by the Commodity Futures Trading Commission (CFTC) to curb excessive speculation in energy commodity markets do not go far enough to protect consumers, Public Citizen said in testimony today before a U.S. Senate subcommittee.
Excessive speculation by financial and energy corporation traders have pushed prices beyond the supply-demand fundamentals, sending costs for consumers through the roof, Tyson Slocum, director of Public Citizen’s Energy Program, told the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations.
“Banks dominate energy trading markets through their role as swaps dealers and as managers of index funds, which facilitates successful proprietary trading operations,” Slocum said. “While the new CFTC rules help to rein in the Wild West feature of energy commodity markets, consumers still are plagued by unreasonably high prices.”
Public Citizen recommends the following reforms to address the harmful impact of excessive speculation has on families:
- Enhance position limits as articulated in the Anti-Excessive Speculation Act of 2011 (S.1598 and H.R. 3006). This legislation not only defines excessive speculation, but also establishes a statutory 5 percent position limit level. This statutory threshold provides greater certainty and better establishes strong consumer protections into law.
- Restrict communication between petroleum energy infrastructure affiliates and trading affiliates. A starting place could be limits on communications between natural gas pipeline and energy trading affiliates. Such rules do not exist for petroleum product pipelines and storage, but should.
- Improve trading market data disclosure by publishing trader-specific positions. This summer, Public Citizen worked with the office of Sen. Bernie Sanders (I-Vt.) to help make public trader-specific energy trading position data. Regular public disclosure of such data is essential for market transparency and to educate the public on who the individual traders are who help set energy prices.
- Modify disclosure policies of the Securities and Exchange Commission (SEC) to require companies to detail energy trading activities in their financial reporting. Currently, companies are under no obligation to disclose commodity-specific information on their volumes, prices or profits from energy trading.
- Impose financial disincentives to speculate, such as instituting a financial transaction tax or disallowing favorable capital gains tax treatment for energy commodity trading.
- Prohibit index funds and mutual funds from investing directly or indirectly through Exchange-Traded Funds (ETFs) from commodity markets.