August 20, 2009
The Honorable Gary Gensler
Chairman, U.S. Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Dear Chairman Gensler:
Consumer Energy Alliance (CEA) is a non-profit, non-partisan organization that supports the sensible utilization of energy resources to improve U.S. economic and energy security. Our diversified membership represents a significant cross-section of the American economy and shares the simple goal of ensuring stable energy prices for consumers.
It is paramount for both producers and consumers of energy that prices reflect the conditions of the physical marketplace – that is, of supply-and-demand fundamentals. It is for this reason that the Commodity Futures Trading Commission (CFTC) was tasked under statute to protect market participants and the American public by implementing necessary rules and regulations designed to prevent fraud, manipulation and excessive speculation, thereby assuring fair, transparent and stable commodity markets.
At the same time, Congress is currently considering legislation that would seek to reduce U.S. greenhouse gas emissions by establishing a carbon trading market. Estimates indicate that this market could top hundreds of billions or even trillions of dollars. The potential scale of such a new market increases the importance of the existence of a regulatory structure that fosters orderly and transparent markets.
To that end, CEA would like to commend you and your fellow Commissioners for looking at ways to bring added stability and confidence to the markets. We welcome your hearings into the role of aggregate position limits on energy futures – across all trading venues – and the need to increase transparency through full disclosure and accurately categorizing all transactions whether commercial or non-commercial; via regulated exchanges or over-the-counter environments. Congress and the Administration are also considering proposals to bring greater transparency and counter-party risk management to the over-the counter-energy and other derivative markets. Any new position limits imposed on regulated exchanges should be coordinated with limits imposed to the over-the-counter markets in order to ensure that regulatory changes are truly effective in addressing concerns related to market manipulation and excessive speculation.
Simultaneously, we recognize that poorly constructed regulatory mechanisms could be counterproductive and we urge you to proceed thoughtfully so as not to impede the price discovery function of commodities markets or deny necessary risk management tools to bona fide hedgers. Commercial traders participate in energy commodity markets as a means of hedging prices of commodities they either produce or consume in the course of their business, and ensuring their access to these markets is paramount. That said, a certain level of participation by non-commercial counterparts is necessary to ensure adequate liquidity and stability in the market. As you work through the regulatory process, we urge you and your fellow commissioners to remain mindful of these distinctions and to seek an appropriate balance that promotes fair and efficient market function.
Energy consumers and producers alike depend upon properly functioning futures markets. Free markets function best when there is accountability and transparency, as well as the prevention of undue market power. Therefore, position limits are important tools in CFTC’s current authorities for addressing the potential contributions of large individual traders to price movements in futures markets.
Again, CEA would like to commend you for continuing to uphold the important CFTC mission in defense of the American public, energy consumers and the integrity of the markets. If at any time our coalition and its member groups might be able to assist the commission with information or comments on this or any other matter, please let us know.
Very sincerely yours,
David E. Holt
President