[Congressional Record Volume 154, Number 97 (Thursday, June 12, 2008)]
[Senate]
[Pages S5629-S5631]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN (for herself and Mr. Stevens):
  S. 3131. A bill to amend the Commodity Exchange Act to ensure the 
application of speculation limits to speculators in energy markets, and 
for other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.
  Mrs. FEINSTEIN. Mr. President, I rise to introduce The Oil 
Speculation Control Act, a bill to reduce the impact of excessive 
speculation in the oil markets.
  The legislation is cosponsored by Senator Ted Stevens.
  Last week the price of oil hit $138 per barrel. A commodity that used 
to be priced at $11 a barrel is now swinging $11 in a single day. 
Yesterday it jumped $5--supposedly in response to a single Department 
of Energy report.
  Gasoline prices now average more than $4.50 in California. Some gas 
stations have to charge by the half gallon. Their pumps cannot 
calculate in prices this high.
  There seems to be no relief in sight for consumers as we enter the 
summer travel season.
  In the Farm Bill Congress finally closed the ``Enron Loophole,'' and 
placed all major electronic trades that could drive energy prices under 
the watchful eye of the Commodity Futures Trading commission, CFTC.
  Today I and Senator Levin introduced the Close the London Loophole 
Act to close another loophole. This bill would bring oversight to 
American energy commodities being traded beyond our borders.
  I also joined Senator Durbin in calling for the President to add 100 
I enforcement professionals to the ranks of the CFTC.
  However, these steps are not enough.

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  I believe we must do more to reduce the excessive speculation of 
institutional investors in oil markets.
  So today I am introducing the Oil Speculation Control Act.
  Let me explain what this bill would do.
  First, it requires CFTC to review the trading practices of 
institutional investors and their dealers within 30 days:
  It ensures that their trading is not adversely impacting the market 
price.
  It determines whether different regulations are necessary:
  It proposes to Congress regulations and legislation necessary to 
prevent the dramatic increase of fuel costs in the futures markets.
  Second, the bill establishes reporting requirements. It requires 
institutional investors, such as pension funds or endowments, to report 
their energy market positions to the CFTC, even when trades are 
executed by a third party broker.
  To further increase transparency, it would force CFTC regulations and 
reports to begin distinguishing between the institutional investors and 
the ``swaps dealers'' or ``index traders'' who broker their trades.
  Third, the bill would force CFTC to limit institutional investor and 
index trader positions, as CFTC limits the positions of more 
traditional market speculators.
  Fourth, it prevents CFTC from considering the positions of 
institutional investors or their brokers to be ``bone fide hedges'' 
that would be exempt from speculative position limits.
  Finally, it requires that the Office of the CFTC's Inspector General 
be removed from the CFTC Chairman's Office and established as an 
independent office.
  This bill is necessary because I believe that speculation in oil 
futures by large institutional investors and index funds is inflating 
the price of oil.
  The unconstrained and overwhelming entrance of these new commodity 
investors, who have bet more than 99 percent of their funds on prices 
rising, must be controlled.
  Recent testimony before numerous Congressional Committees indicates 
that between 2000 and 2002, major institutional investors began to view 
commodity futures markets as a new ``asset class'' suitable to be used 
in large financial portfolios. Since 2000, investment fund managers 
have come to believe that investing in commodities balances a stock 
portfolio.
  As Daniel Yergin, one of the Nation's leading energy market experts 
put it: ``Oil has become the `new gold'--a financial asset in which 
investors seek refuge as inflation rises and the dollar weakens.''
  Never before have so many institutional investors made large scale 
investments in commodity markets, but from 2003 to 2008, investments in 
commodity index funds rose from $13 billion to $260 billion.
  The implications for consumers of this shift are potentially 
devastating. Unlike gold, energy and agricultural commodities meet 
essential needs in the everyday lives of average Americans, and the 
potential risk that investment strategies will push the price of these 
goods higher during economic downturns presents a threat to the public 
welfare. I do not believe this is in the best interest of the American 
public.
  Under the Commodity Exchange Act, the CFTC must impose speculation 
limits on the size of energy trader positions. Crude oil speculative 
positions are limited to a total of 20 million barrels of oil and 3 
million barrels of oil in the last three days of a contract.
  However, it is CFTC's practice to exempt institutional investors from 
such limits when investors execute their trades through brokers or 
dealers.
  This is a mistake.
  They are not hedging against the risk of changing oil prices, as 
airlines or utilities frequently must do.
  They never take delivery of the product.
  They participate in the oil markets only on paper.
  This bill will assure that the existing speculation limit powers will 
constrain the market distortion resulting from this massive influx of 
capital. It will ensure a regulatory system that limits the size and 
influence of institutional investor positions in energy markets.
  Even CFTC has realized that its policy may be mistaken.
  Last month it announced that it will review the trading practices for 
index traders in the futures markets to ensure that this type of 
trading activity is not adversely impacting the price discovery 
process. They also plan to determine whether different practices should 
be employed.
  Today's markets evolve quickly, and we need to make sure our market 
oversight responds just as quickly.
  We now know that over the last few years a whole new kind of investor 
has entered oil markets. Institutional investors only bet that the 
price will go up. No matter how high the price goes, they pour into the 
market to push it higher.
  We have ways to control this. We have speculation limits. But we are 
not using them. I am introducing this bill to make sure we use the 
tools we have.
  As the markets continue to evolve, so must our regulation. I believe 
the Oil Speculation Control Act takes this step, and I encourage my 
colleagues to support it.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3131

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Oil Speculation Control Act 
     of 2008''.

     SEC. 2. DEFINITION OF INSTITUTIONAL INVESTOR.

       (a) Definition.--Section 1a of the Commodity Exchange Act 
     (7 U.S.C. 1a) is amended--
       (1) by redesignating paragraphs (22) through (34) as 
     paragraphs (23) through (35), respectively; and
       (2) by inserting after paragraph (21) the following:
       ``(22) Institutional investor.--The term `institutional 
     investor' means a long-term investor in financial markets 
     (including pension funds, endowments, and foundations) that--
       ``(A) invests in energy commodities as an asset class in a 
     portfolio of financial investments; and
       ``(B) does not take or make physical delivery of energy 
     commodities on a frequent basis, as determined by the 
     Commission.''.
       (b) Conforming Amendments.--
       (1) Section 13106(b)(1) of the Food, Conservation, and 
     Energy Act of 2008 is amended by striking ``section 1a(32)'' 
     and inserting ``section 1a''.
       (2) Section 402(d)(1)(B) of the Legal Certainty for Bank 
     Products Act of 2000 (7 U.S.C. 27(d)(1)(B)) is amended by 
     striking ``section 1a(33)'' and inserting ``section 1a''.

     SEC. 3. INSPECTOR GENERAL.

       Section 2(a) of the Commodity Exchange Act (7 U.S.C. 2(a)) 
     is amended by adding at the end the following:
       ``(13) Inspector general.--
       ``(A) Office.--There shall be in the Commission, as an 
     independent office, an Office of the Inspector General.
       ``(B) Appointment.--The Office shall be headed by an 
     Inspector General, appointed in accordance with the Inspector 
     General Act of 1978 (5 U.S.C. App.).
       ``(C) Compensation.--The Inspector General shall be 
     compensated at the rate provided for level IV of the 
     Executive Schedule under section 5315 of title 5, United 
     States Code.
       ``(D) Administration.--The Inspector General shall exert 
     independent control of the budget allocations, expenditures, 
     and staffing levels, personnel decisions and processes, 
     procurement, and other administrative and management 
     functions of the Office.''.

     SEC. 4. TRADING PRACTICES REVIEW WITH RESPECT TO INDEX 
                   TRADERS, SWAP DEALERS, AND INSTITUTIONAL 
                   INVESTORS.

       Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is 
     amended by adding at the end the following:
       ``(e) Trading Practices Review With Respect to Index 
     Traders, Swap Dealers, and Institutional Investors.--
       ``(1) Review.--
       ``(A) In general.--Not later than 30 days after the date of 
     enactment of this subsection, the Commission shall carry out 
     a review of the trading practices of index traders, swap 
     dealers, and institutional investors in markets under the 
     jurisdiction of the Commission--
       ``(i) to ensure that index trading is not adversely 
     impacting the price discovery process;
       ``(ii) to determine whether different practices or 
     regulations should be implemented; and
       ``(iii) to gather data for use in proposing regulations to 
     limit the size and influence of institutional investor 
     positions in commodity markets.
       ``(B) Emergency authority.--For the 60-day period described 
     in subparagraph (A), in accordance with each applicable rule 
     adopted under section 5(d)(6), the Commission shall exercise 
     the emergency authority of the Commission to prevent 
     institutional investors from increasing the positions of the 
     institutional investors in--

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       ``(i) energy commodity futures; and
       ``(ii) commodity future index funds.
       ``(2) Report.--Not later than 30 days after the date 
     described in paragraph (1)(A), the Commission shall submit to 
     the appropriate committees of Congress a report that contains 
     recommendations for such legislation as the Commission 
     determines to be necessary to limit the size and influence of 
     institutional investor positions in commodity markets.''.

     SEC. 5. BONA FIDE HEDGING TRANSACTIONS OR POSITIONS.

       Section 4a(c) of the Commodity Exchange Act (7 U.S.C. 
     6a(c)) is amended by striking ``(c) No rule'' and inserting 
     the following:
       ``(c) Bona Fide Hedging Transactions or Positions.--
       ``(1) Definition of bona fide hedging transaction or 
     position.--The term `bona fide hedging transaction or 
     position' means a transaction or position that represents a 
     hedge against price risk exposure relating to physical 
     transactions involving an energy commodity.
       ``(2) Application with respect to bona fide hedging 
     transactions or positions.--No rule''.

     SEC. 6. SPECULATION LIMITS RELATING TO SPECULATORS IN ENERGY 
                   MARKETS.

       Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is 
     amended by adding at the end the following:
       ``(f) Speculation Limits Relating to Speculators in Energy 
     Markets.--
       ``(1) Definition of speculator.--In this subsection, the 
     term `speculator' includes any institutional investor or 
     investor of an investment fund that holds a position through 
     an intermediary broker or dealer.
       ``(2) Enforcement of speculation limits.--The Commission 
     shall enforce speculation limits with respect to speculators 
     in energy markets.''.

     SEC. 7. LARGE TRADER REPORTING WITH RESPECT TO INDEX TRADERS, 
                   SWAP DEALERS, AND INSTITUTIONAL INVESTORS.

       Section 4g of the Commodity Exchange Act (7 U.S.C. 6g) is 
     amended by adding at the end the following:
       ``(g) Large Trader Reporting With Respect to Index Traders, 
     Swap Dealers, and Institutional Investors.--
       ``(1) In general.--Each recordkeeping and reporting 
     requirement under this section relating to large trader 
     transactions and positions shall apply to index traders, 
     swaps dealers, and institutional investors in markets under 
     the jurisdiction of the Commission.
       ``(2) Promulgation of regulations.--As soon as practicable 
     after the date of enactment of this subsection, the 
     Commission shall promulgate regulations to establish separate 
     classifications for index traders, swaps dealers, and 
     institutional investors--
       ``(A) to enforce the recordkeeping and reporting 
     requirements described in paragraph (1); and
       ``(B) to enforce position limits and position 
     accountability levels with respect to energy commodities 
     under section 4a(f).''.

     SEC. 8. INSTITUTIONAL INVESTOR SPECULATION LIMITS.

       (a) Core Principles Applicable to Significant Price 
     Discovery Contracts.--Section 2(h)(7)(C)(ii)(IV) of the 
     Commodity Exchange Act (7 U.S.C. 2(h)(7)(C)(ii)(IV)) is 
     amended by inserting after ``speculators'' the following: 
     ``(including institutional investors that do not take 
     delivery of energy commodities and that hold positions in 
     energy commodities through swaps dealers or other third 
     parties)''.
       (b) Core Principles for Contract Markets.--Section 5(d)(5) 
     of the Commodity Exchange Act (7 U.S.C. 7(d)(5)) is amended 
     by inserting after ``speculators'' the following: 
     ``(including institutional investors that do not take 
     delivery of energy commodities and that hold positions in 
     energy commodities through swaps dealers or other third 
     parties)''.
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