[Congressional Record Volume 154, Number 97 (Thursday, June 12, 2008)]
[Senate]
[Pages S5627-S5628]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LEVIN (for himself, Mrs. Feinstein, Mr. Durbin, Mr. 
        Dorgan, and Mr. Bingaman):
  S. 3129. A bill to amend the Commodity Exchange Act to prevent price 
manipulation and excessive speculation and to increase transparency 
with respect to energy trading on foreign exchanges conducted within 
the United States; to the Committee on Agriculture, Nutrition, and 
Forestry.
  Mr. LEVIN. Mr. President, today I am introducing, along with Senators 
Feinstein, Durbin, and Dorgan, the Close the London Loophole Act. This 
legislation would ensure that the Commodity Futures Trading Commission, 
CFTC, has the same authority to detect, prevent, and punish 
manipulation and excessive speculation for traders in the United States 
who trade crude U.S. oil or other energy commodities on foreign 
commodity exchanges as the CFTC has for traders who trade on U.S. 
exchanges.
  Today, U.S. crude oil and gasoline futures are traded primarily on 
exchanges in New York and London. While the CFTC--our cop on the beat--
has clear authority to go after trading abuses on the New York 
exchange, its authority is less clear when it comes to U.S. energy 
commodities traded on the London exchange. The bill we are introducing 
today would close the London loophole by ensuring the CFTC has all the 
information and authority it needs to stop price manipulation or 
excessive speculation involving U.S. energy trades on foreign 
exchanges.
  Under current law, the CFTC obtains the information it needs to 
detect price manipulation and excessive speculation involving U.S. 
energy trades on foreign exchanges only through voluntary data-sharing 
agreements it arranges with the relevant foreign regulators. In many 
instances, the CFTC can take action against a U.S. trader on a foreign 
exchange to prevent manipulation or excessive speculation only with the 
cooperation and consent of the foreign regulator.
  Our bill would strengthen CFTC oversight by providing the CFTC with 
clear legal authority, as well as a clear legal obligation, to obtain 
trading data from foreign exchanges operating in the United States 
through direct trading terminals. In addition, the bill would enable 
the CFTC to act on its own authority and initiative to prevent 
manipulation or excessive speculation by U.S. traders directing trades 
through foreign exchanges. This new authority would ensure that our own 
government has the information and ability to protect American markets 
from manipulation and excessive speculation, no matter where U.S. 
energy commodities are traded. U.S. traders will no longer be able to 
avoid the cop on the beat by routing their trades through a foreign 
exchange.
  This legislation would complement a recent legislative initiative I 
have long worked on to ensure that U.S. commodity markets are free from 
manipulation and excessive speculation. Last month the Congress passed, 
over the President's veto, legislation to close the Enron loophole. 
This loophole, enacted into law in 2000 at the behest of Enron and 
other commodity traders, had allowed large traders to buy and sell 
energy commodities on U.S. electronic markets without CFTC oversight. 
The legislation passed last month as part of the farm bill gave the 
CFTC the authority and mandate to police U.S. electronic exchanges to 
stop price manipulation and excessive speculation. No longer will these 
electronic commodity exchanges be able to operate in the dark, as they 
had under the Enron loophole.

  Closing the Enron loophole is a major advance in U.S. energy market 
oversight as a whole, and for our natural gas markets in particular, 
but it is not enough. Because over the last two years, energy traders 
have begun trading U.S. crude oil, gasoline, and home heating oil on 
the London exchange, beyond the direct reach of U.S. regulators, we 
have to address that second loophole too. I call it closing the London 
loophole.
  There are currently two key energy commodity markets for U.S. crude 
oil, gasoline, and heating oil trading. The first is the New York 
Mercantile Exchange or NYMEX, located in New York City. The second is 
the ICE Futures Europe exchange, located in London and regulated by the 
British agency called the Financial Services Authority.
  British regulators do not oversee their energy markets the same way 
we do. They don't place limits on speculation like we do, they don't 
monitor trader positions like we do, and they do not require the same 
type of data to be reported to regulatory authorities. That means that 
traders can avoid U.S. crude oil speculation limits on the New York 
exchange by trading on the London exchange. It also makes the London 
exchange less transparent than the New York exchange. The legislation I 
introduced last year to close the Enron loophole would have required 
U.S. traders on the London exchange to provide U.S. regulators with the 
same type of trading information that they are already required to 
provide when they trade on the New York Mercantile Exchange. 
Unfortunately, this provision was dropped from the close-the-Enron-
loophole legislation in the farm bill.
  The Consumer-First Energy Act, S. 3044, which the Majority Leader and 
others introduced recently to address high prices and reduce 
speculation, included at my request a provision to curb rampant 
speculation, increase our access to foreign exchange trading data, and 
strengthen oversight of the trading of U.S. energy commodities no 
matter where that trading occurs. This provision would require the 
CFTC, prior to allowing a foreign exchange to establish direct trading 
terminals located in this country, to obtain an agreement from that 
foreign exchange to impose speculative limits and reporting 
requirements on traders of U.S. energy commodities comparable to the 
requirements imposed by the CFTC on U.S. exchanges. This issue is so 
important that I introduced this section of the package as a separate 
bill, S. 2995, along with Senator Feinstein.
  Following the introduction of our legislation, the CFTC finally moved 
to address some of the gaps in its ability to oversee foreign exchanges 
operating in the United States. Specifically, the CFTC, working with 
the United Kingdom Financial Services Authority and the ICE Futures 
Europe exchange, announced that it will now obtain the following 
information about the trading of U.S. crude oil contracts on the London 
exchange: daily large trader reports on positions in West Texas 
Intermediate or WTI contracts traded on the London exchange; 
information on those large trader positions for all futures contracts, 
not just a limited set of contracts due to expire in the near future; 
enhanced trader information to permit more detailed identification of 
end users; improved data formatting to facilitate integration of the 
data with other CFTC data systems; and notification to the CFTC of when 
a trader on ICE Futures Europe exceeds the position accountability 
levels established by NYMEX for the trading of WTI crude oil contracts.

  These new steps will strengthen the CFTC's ability to detect and 
prevent manipulation and excessive speculation in the oil and gasoline 
markets. It will ensure that the CFTC has the same type of information 
it receives from U.S. exchanges in order to detect and prevent 
manipulation and excessive speculation on the London exchange.
  However, in order to fully close the London loophole, better 
information is not enough. The CFTC must also have clear authority to 
act upon this information to stop manipulation and excessive 
speculation.

[[Page S5628]]

  That is why I have been working with the sponsors of the Consumer-
First Energy Act to develop additional language to ensure that the CFTC 
has the authority to act upon the information obtained from the London 
exchange to prevent price manipulation and excessive speculation. This 
new provision would make it clear that the CFTC has the authority to 
prosecute and punish manipulation of the price of a commodity, 
regardless of whether the trader within the United States is trading on 
a U.S. or on a foreign exchange. It would also make it clear that the 
CFTC has the authority to require traders in the United States to 
reduce their positions, no matter where the trading occurs--on a U.S. 
or foreign exchange--to prevent price manipulation or excessive 
speculation in U.S. commodities. Finally, it would clarify that the 
CFTC has the authority to require all U.S. traders to keep records of 
their trades, regardless of which exchange the trader is using.
  This new provision is included in the bill we are introducing today. 
I hope that it will also be included in the Consumer-First Energy Act 
when Senate debate is allowed to go forward on that bill.
  In closing the London loophole, we will ensure there is a cop on the 
beat for all U.S. energy commodity traders, no matter whether they are 
trading on an exchange in New York or in London. It will ensure that 
our regulators have the information and the tools to detect, prevent, 
and punish manipulation and excessive speculation.
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