[Congressional Record (Bound Edition), Volume 148 (2002), Part 3]
[Senate]
[Pages 3393-3409]
[From the U.S. Government Publishing Office, www.gpo.gov]




   NATIONAL LABORATORIES PARTNERSHIP IMPROVEMENT ACT OF 2001--Resumed

  Mr. REID. Mr. President, I maybe misspoke. I ask for the regular 
order as it relates to the energy bill that Senator Bingaman has been 
marshaling the last several days.
  The ACTING PRESIDENT pro tempore. The clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 517) to authorize funding for the Department of 
     Energy to enhance its mission areas through technology 
     transfer and partnerships for fiscal years 2002 through 2006, 
     and for other purposes.

  Pending:

       Daschle/Bingaman further modified amendment No. 2917, in 
     the nature of a substitute.
       Feinstein amendment No. 2989 (to amendment No. 2917), to 
     provide regulatory oversight over energy trading markets.
       Kerry/McCain amendment No. 2999 (to amendment No. 2917), to 
     provide for increased average fuel economy standards for 
     passenger automobiles and light trucks.
       Dayton/Grassley amendment No. 3008 (to amendment No. 2917), 
     to require that Federal agencies use ethanol-blended gasoline 
     and biodiesel-blended diesel fuel in areas in which ethanol-
     blended gasoline and biodiesel-blended diesel fuel are 
     available.
       Bingaman amendment No. 3016 (to amendment No. 2917), to 
     clarify the provisions relating to the Renewable Portfolio 
     Standard.
       Lott amendment No. 3028 (to amendment No. 2917), to provide 
     for the fair treatment of Presidential judicial nominees.

  Mr. REID. Mr. President, on the energy bill, what is the pending 
amendment?
  The ACTING PRESIDENT pro tempore. The pending amendment is the Lott 
amendment, No. 3028.
  Mr. REID. I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mrs. FEINSTEIN. Mr. President, I ask unanimous consent the order for 
the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.


                    Amendment No. 2989, As Modified

  Mrs. FEINSTEIN. Mr. President, I call for the regular order with 
respect to my amendment.
  The ACTING PRESIDENT pro tempore. The amendment of the Senator from 
California is now pending.
  Mrs. FEINSTEIN. Mr. President, I send a modification to the desk.
  The ACTING PRESIDENT pro tempore. The amendment is so modified.
  The amendment, as modified, is as follows:

       At the end, add the following:

                       DIVISION __--MISCELLANEOUS

                      TITLE I--ENERGY DERIVATIVES

     SEC. __1. JURISDICTION OF THE COMMODITY FUTURES TRADING 
                   COMMISSION OVER ENERGY TRADING MARKETS AND 
                   METALS TRADING MARKETS.

       (a) FERC Liaison.--Section 2(a)(8) of the Commodity 
     Exchange Act (7 U.S.C. 2(a)(8)) is amended by adding at the 
     end the following:
       ``(C) FERC liaison.--The Commission shall, in cooperation 
     with the Federal Energy Regulatory Commission, maintain a 
     liaison between the Commission and the Federal Energy 
     Regulatory Commission.''.
       (b) Exempt Transactions.--Section 2 of the Commodity 
     Exchange Act (7 U.S.C. 2) is amended--
       (1) in subsection (h), by adding at the end the following:
       ``(7) Applicability.--This subsection does not apply to an 
     agreement, contract, or transaction in an exempt energy 
     commodity or an exempt metal commodity described in section 
     2(j)(1).''; and
       (2) by adding at the end the following:
       ``(j) Exempt Transactions.--
       ``(1) Transactions in exempt energy commodities and exempt 
     metals commodities.--An agreement, contract, or transaction 
     (including a transaction described in section 2(g)) in an 
     exempt energy commodity or exempt metal commodity shall be 
     subject to--
       ``(A) sections 4b, 4c(b), 4o, and 5b;
       ``(B) subsections (c) and (d) of section 6 and sections 6c, 
     6d, and 8a, to the extent that those provisions--
       ``(i) provide for the enforcement of the requirements 
     specified in this subsection; and
       ``(ii) prohibit the manipulation of the market price of any 
     commodity in interstate commerce or for future delivery on or 
     subject to the rules of any contract market;
       ``(C) sections 6c, 6d, 8a, and 9(a)(2), to the extent that 
     those provisions prohibit the manipulation of the market 
     price of any commodity in interstate commerce or for future 
     delivery on or subject to the rules of any contract market;
       ``(D) section 12(e)(2); and
       ``(E) section 22(a)(4).
       ``(2) Bilateral dealer markets.--
       ``(A) In general.--Except as provided in paragraph (6), a 
     person or group of persons that constitutes, maintains, 
     administers, or provides a physical or electronic facility or 
     system in which a person or group of persons has the ability 
     to offer, execute, trade, or confirm the execution of an 
     agreement, contract, or transaction (including a transaction 
     described in section 2(g)) (other than an agreement, 
     contract, or transaction in an excluded commodity), by making 
     or accepting the bids and offers of 1 or more participants on 
     the facility or system (including facilities or systems 
     described in clauses (i) and (iii) of section 1a(33)(B)), may 
     offer or may allow participants in the facility or system to 
     enter into, enter into, or confirm the execution of any 
     agreement, contract, or transaction under paragraph (1) 
     (other than an agreement, contract, or transaction in an 
     excluded commodity) only if the person or group of persons 
     meets the requirement of subparagraph (B).
       ``(B) Requirement.--The requirement of this subparagraph is 
     that a person or group of persons described in subparagraph 
     (A) shall--
       ``(i) provide notice to the Commission in such form as the 
     Commission may specify by rule or regulation;
       ``(ii) file with the Commission any reports (including 
     large trader position reports) that the Commission requires 
     by rule or regulation;
       ``(iii) maintain sufficient capital, commensurate with the 
     risk associated with the transaction, as determined by the 
     Commission;
       ``(iv)(I) consistent with section 4i, maintain books and 
     records relating to each transaction in such form as the 
     Commission may specify for a period of 5 years after the date 
     of the transaction; and
       ``(II) make those books and records available to 
     representatives of the Commission and the Department of 
     Justice for inspection for a period of 5 years after the date 
     of each transaction; and
       ``(iv) make available to the public on a daily basis 
     information on volume, settlement price, open interest, 
     opening and closing ranges, and any other information that 
     the Commission determines to be appropriate for public 
     disclosure, except that the Commission may not--

       ``(I) require the real time publication of proprietary 
     information; or
       ``(II) prohibit the commercial sale of real time 
     proprietary information.

       ``(3) Reporting requirements.--On request of the 
     Commission, an eligible contract participant that trades on a 
     facility or system described in paragraph (2)(A) shall 
     provide to the Commission, within the time period specified 
     in the request and in such form and manner as the Commission 
     may specify, any information relating to the transactions of 
     the eligible contract participant on the facility or system 
     within 5 years after the date of any transaction that the 
     Commission determines to be appropriate.
       ``(4) Transactions exempted by commission action.--Any 
     agreement, contract, or transaction described in paragraph 
     (1) (other than an agreement, contract, or transaction in an 
     excluded commodity) that would otherwise be exempted by the 
     Commission under section 4(c) shall be subject to--
       ``(A) sections 4b, 4c(b), 4o, and 5b; and
       ``(B) subsections (c) and (d) of section 6 and sections 6c, 
     6d, 8a, and 9(a)(2), to the extent that those provisions 
     prohibit the manipulation of the market price of any 
     commodity in interstate commerce or for future delivery on or 
     subject to the rules of any contract market.
       ``(5) No effect on other ferc authority.--This subsection 
     does not affect the authority of the Federal Energy 
     Regulatory Commission to regulate transactions under the 
     Federal Power Act (16 U.S.C. 791a et seq.) or the Natural Gas 
     Act (15 U.S.C 717 et seq.).
       ``(6) Applicability.--This subsection does not apply to--
       ``(A) a designated contract market regulated under section 
     5; or
       ``(B) a registered derivatives transaction execution 
     facility regulated under section 5a.''.

[[Page 3394]]

       (c) Contracts Designed to Defraud or Mislead.--Section 4b 
     of the Commodity Exchange Act (7 U.S.C. 6b) is amended by 
     striking subsection (a) and inserting the following:
       ``(a) Prohibition.--It shall be unlawful for any member of 
     a registered entity, or for any correspondent, agent, or 
     employee of any member, in or in connection with any order to 
     make, or the making of, any contract of sale of any commodity 
     in interstate commerce, made, or to be made on or subject to 
     the rules of any registered entity, or for any person, in or 
     in connection with any order to make, or the making of, any 
     agreement, transaction, or contract in a commodity subject to 
     this Act--
       ``(1) to cheat or defraud or attempt to cheat or defraud 
     any person;
       ``(2) willfully to make or cause to be made to any person 
     any false report or statement, or willfully to enter or cause 
     to be entered any false record;
       ``(3) willfully to deceive or attempt to deceive any person 
     by any means; or
       ``(4) to bucket the order, or to fill the order by offset 
     against the order of any person, or willfully, knowingly, and 
     without the prior consent of any person to become the buyer 
     in respect to any selling order of any person, or to become 
     the seller in respect to any buying order of any person.''
       (d) Conforming Amendments.--The Commodity Exchange Act is 
     amended--
       (1) in section 2 (7 U.S.C. 2)--
       (A) in subsection (h)--
       (i) in paragraph (1), by striking ``paragraph (2)'' and 
     inserting ``paragraphs (2) and (7)''; and
       (ii) in paragraph (3), by striking ``paragraph (4)'' and 
     inserting ``paragraphs (4) and (7)''; and
       (B) in subsection (i)(1)(A), by striking ``section 2(h) or 
     4(c)'' and inserting ``subsection (h) or (j) or section 
     4(c)'';
       (2) in section 4i (7 U.S.C. 6i)--
       (A) by striking ``any contract market or'' and inserting 
     ``any contract market,''; and
       (B) by inserting ``, or pursuant to an exemption under 
     section 4(c)'' after ``transaction execution facility'';
       (3) in section 5a(g)(1) (7 U.S.C. 7a(g)(1)), by striking 
     ``section 2(h)'' and inserting ``subsection (h) or (j) of 
     section 2'';
       (4) in section 5b (7 U.S.C. 7a-1)--
       (A) in subsection (a)(1), by striking ``2(h) or'' and 
     inserting ``2(h), 2(j), or''; and
       (B) in subsection (b), by striking ``2(h) or'' and 
     inserting ``2(h), 2(j), or''; and
       (5) in section 12(e)(2)(B) (7 U.S.C. 16(e)(2)(B)), by 
     striking ``section 2(h) or 4(c)'' and inserting ``subsection 
     (h) or (j) of section 2 or section 4(c)''.

     SEC. __2. RECRUITMENT AND RETENTION OF QUALIFIED PERSONNEL AT 
                   THE COMMODITY FUTURES TRADING COMMISSION.

       (a) In General.--Section 2(a)(6) of the Commodity Exchange 
     Act (7 U.S.C. 2(a)(6)) is amended by adding at the end the 
     following:
       ``(G) Personnel matters.--
       ``(i) In general.--The Chairman may appoint and fix the 
     compensation of any officers, attorneys, economists, 
     examiners, and other employees that are necessary in the 
     execution of the duties of the Commission.
       ``(ii) Compensation.--

       ``(I) In general.--Rates of basic pay for all employees of 
     the Commission may be set and adjusted by the Chairman 
     without regard to the provisions of chapter 51 or subchapter 
     III of chapter 53 of title 5, United States Code.
       ``(II) Additional compensation.--The Chairman may provide 
     additional compensation and benefits to employees of the 
     Chairman if the same type and amount of compensation or 
     benefits are provided, or are authorized to be provided, by 
     any other Federal agency specified in section 1206 of the 
     Financial Institutions Reform, Recovery, and Enforcement Act 
     of 1989 (12 U.S.C. 1833b).
       ``(III) Comparability.--In setting and adjusting the total 
     amount of compensation and benefits for employees under this 
     subparagraph, the Chairman shall consult with, and seek to 
     maintain comparability with, any other Federal agency 
     specified in section 1206 of the Financial Institutions 
     Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 
     1833b).''.

       (b) Conforming Amendments.--
       (1) Section 3132(a)(1) of title 5, United States Code, is 
     amended--
       (A) in subparagraph (C), by striking ``or'';
       (B) in subparagraph (D), by adding ``or'' at the end; and
       (C) by adding at the end the following:
       ``(E) the Commodity Futures Trading Commission.''.
       (2) Section 5316 of title 5, United States Code, is 
     amended--
       (A) by striking ``General Counsel, Commodity Futures 
     Trading Commission.''; and
       (B) by striking ``Executive Director, Commodity Futures 
     Trading Commission.''.
       (3) Section 5373(a) of title 5, United States Code, is 
     amended--
       (A) in paragraph (2), by striking ``or'' at the end;
       (B) by redesignating paragraph (3) as paragraph (4); and
       (C) by inserting after paragraph (2) the following:
       ``(3) section 2(a)(6)(G) of the Commodity Exchange Act.''.
       (4) Section 1206 of the Financial Institutions Reform, 
     Recovery, and Enforcement Act of 1989 (12 U.S.C. 1833b) is 
     amended by inserting ``the Commodity Futures Trading 
     Commission,'' after ``the Farm Credit Administration, ''.

     SEC. __3. JURISDICTION OF THE FEDERAL ENERGY REGULATORY 
                   COMMISSION OVER ENERGY TRADING MARKETS.

       Section 402 of the Department of Energy Organization Act 
     (42 U.S.C. 7172) is amended by adding at the end the 
     following:
       ``(i) Jurisdiction Over Derivatives Transactions.--
       ``(1) In general.--To the extent that the Commission 
     determines that any contract that comes before the Commission 
     is not under the jurisdiction of the Commission, the 
     Commission shall refer the contract to the appropriate 
     Federal agency.
       ``(2) Meetings.--A designee of the Commission shall meet 
     quarterly with a designee of the Commodity Futures Trading 
     Commission, the Securities Exchange Commission, the Federal 
     Trade Commission, and the Federal Reserve Board to discuss--
       ``(A) conditions and events in energy trading markets; and
       ``(B) any changes in Federal law (including regulations) 
     that may be appropriate to regulate energy trading markets.
       ``(3) Liaison.--The Commission shall, in cooperation with 
     the Commodity Futures Trading Commission, maintain a liaison 
     between the Commission and the Commodity Futures Trading 
     Commission.''.

  Mrs. FEINSTEIN. Mr. President, I rise on behalf of Senators 
Fitzgerald, Cantwell, Corzine, Wyden, Leahy, Boxer, and Durbin in 
modifying our amendment on energy derivatives.
  As you know, we discussed this issue on the floor before, and the 
senior Senator from Texas had some concerns. So we spent a good deal of 
time talking with him and his staff. We have also kept in touch with 
our cosponsors. We have agreed on some modifications. There are some 
modifications that the Senator from Texas sought that the cosponsors 
and I could not agree to. So this modification represents where we 
agree and not where we disagree.
  I begin by explaining two terms in the amendment. The first term is 
``a derivative.'' A derivative is a financial instrument traded on or 
off an exchange, the price of which is directly dependent upon an 
underlying commodity, such as natural gas or electricity. An ``over-
the-counter'' or ``swap'' contract is an agreement whereby a floating 
price is exchanged for a fixed price over a specified period. It 
involves no transfer of physical energy, and both parties settle their 
contractual obligations in cash.
  Although energy derivatives make up only 4 percent of all derivative 
transactions, energy swaps make up 80 percent of all energy 
derivatives. So these are important terms.
  What our amendment does is subject electronic exchanges, such as 
Enron Online, Dynegydirect, and IntercontinentalExchange--these 
exchanges trade energy derivatives--to the similar oversight reporting 
and capital requirements as other exchanges, such as the Chicago 
Mercantile Exchange, the New York Mercantile Exchange, and the Chicago 
Board of Trade. However, since the vast majority of energy derivative 
transactions are over the counter, the Commodity Futures Trading 
Commission has insufficient authority, at present, to investigate and 
prevent fraud and price manipulation, and parties making these trades 
are not required to keep records of their trades. In other words, there 
is no transparency. There is no record and there is no oversight of 
these particular trades.
  So our amendment simply requires these parties to keep records of 
their transactions, which is what most companies do in any event.
  If it turns out there is a fraud allegation, the CFTC will have a 
record to review. This is the same fraud and manipulation authority the 
Commodity Futures Trading Commission has for every other commodity and 
it is the same authority they had until Congress passed the Commodity 
Futures Modernization Act in 2000. That act exempted energy and metals 
trading from regulatory oversight, and excluded it completely if the 
trade was done electronically. Before this act, it was all included. 
Following the act, it was excluded. That was around June of 2000.
  The problem and why we need this legislation: Presently, energy 
transactions--those about which I am not speaking, but the other energy 
transactions--are regulated by the Federal

[[Page 3395]]

Energy Regulatory Commission when there is actually a delivery of the 
energy commodity.
  What do I mean? If I buy natural gas from you, and you deliver that 
natural gas to me, the Federal Energy Regulatory Commission has the 
authority to ensure that this transaction is both transparent and 
reasonably priced. In other words, FERC has regulatory authority when 
the energy is actually delivered. However, energy transactions have 
become increasingly complex over the past decade. So, today, energy 
transactions do not always result in a direct delivery, and thus a 
giant loophole has opened where there is no transparency, no records, 
and no oversight. And that is not when I sell it to you to deliver it 
but when I sell it to you and you sell it to somebody else, who sells 
it to somebody else, who sells it to somebody else, and then it is 
delivered. Those interim trades are in no way, shape, or form 
transparent. They are done in secret. There is no oversight and there 
is no record.
  So I can purchase from you a derivatives contract, which is a promise 
that you will deliver natural gas to me at some point in the future. I 
may never need to physically own that gas, so I can at a small profit 
sell that gas to someone, who can then turn around and sell it yet to 
someone else, and so on and so forth, as I have just pointed out. The 
promise of a gas delivery can literally change hands dozens of times 
before the commodity is ever delivered. Even then, it may never get 
delivered if the spot market price is lower than the future price that 
comes due on that day. That is what I meant about saying it is very 
complicated.
  In fact, about 90 percent of the energy trades represent purely 
financial transactions, not regulated by either the Federal Energy 
Regulatory Commission, or the CFTC. So as long as there is no delivery, 
there is no price transparency. We do not know the price or the terms 
for 90 percent of the energy transactions. Let me repeat that. Today, 
no one knows the price or the terms for 90 percent of the energy 
transactions.
  Again, this lack of transparency and oversight only applies to 
energy. It does not apply if you are selling wheat or pork bellies or 
any other tangible commodity. As I said, there is a very big loophole 
here. What we seek to do is simply close that loophole.
  How did this happen? The answer is, the Commodity Futures 
Modernization Act, signed into law in 2000, exempted energy and 
minerals trading from regulatory oversight and also exempted electronic 
trading platforms from oversight. That is the online trading that 
occurs. In a sense, what the legislation did was set up two different 
systems: treating electronic trading platforms differently from other 
platforms, and treating energy commodities different from other 
commodities.
  Up until 2000, energy derivative transactions were regulated in a 
similar fashion to other transactions, and all energy transactions were 
subject to antifraud and antimanipulation oversight. Electronic trading 
platforms were treated like all other platforms. These were the 
standards that were in place until June of 2000. Up until that time, if 
a gas or electricity commodity was delivered, FERC had oversight, and 
there was transparency; if there was not delivery, the CFTC had the 
authority. So the loophole arose just 2 years ago.
  At the time of the 2000 legislation, no one knew how the exemptions 
would affect the energy market. It was a new market. They wanted to see 
growth. So they kind of unleashed it and said: All this can go on 
without the light of day.
  We have a much better idea today because of what we have learned 
since then. It didn't take long for Enron Online and others in the 
energy sector to take advantage of this new freedom--and, to an extent, 
secrecy--by trading energy derivatives absent any regulatory oversight 
or transparency. Thus, after the 2000 legislation was enacted, Enron 
Online began to trade energy derivatives bilaterally, over the counter, 
in a one-to-one transaction, without being subject to any regulatory 
oversight whatsoever.
  It should not surprise anyone that, without transparency, prices went 
right up. Was Enron and its energy derivatives trading arm, Enron 
Online, the sole reason California and the West had an energy crisis 18 
months ago? Of course not. Was it a contributing factor to the crisis? 
I believe it was.
  Unfortunately, because of the energy exemptions in the 2000 
Commodities Futures Modernization Act, which took away the CFTC's 
authority to investigate, we may never know for sure since there are no 
records.
  For me, this issue comes down to some fundamental questions. Why 
shouldn't there be transparency in the energy market? Why should the 
CFTC not have antifraud, antimanipulation authority when there is fraud 
and manipulation in the market? And why shouldn't California's energy 
ratepayers and customers and consumers and ratepayers in other States 
enjoy the same CFTC protections as ranchers and farmers do today?
  The modification of our amendment results from the discussions my 
cosponsors and I had with Senator Phil Gramm, who approached us to 
express his concern that our bill could inadvertently impact financial 
derivatives. We made several changes to accommodate Senator Gramm's 
concerns, and we were hopeful we could reach agreement with him. 
However, there are four additional points where we did not reach 
agreement: exempting energy swaps from CFTC antifraud and 
antimanipulation authority; deleting all public price-transparency 
requirements; exempting all electronic exchanges from requirements that 
they maintain sufficient capital to carry out their operations, based 
on risk; and finally, eliminating metal derivatives from oversight.
  As I said before, energy swaps--this is a point of contention between 
us--comprise as much as 80 percent of energy derivatives transactions 
so this change would have taken the teeth out of our amendment. We 
consulted with our cosponsors. They did not want to agree to it. I 
believe Senator Fitzgerald is coming to the Chamber to speak to this.
  Additionally, our amendment states that electronic trading forums 
should hold capital commensurate with the risk, which seems a 
reasonable expectation to me. The public can already access information 
from nonelectronic exchanges simply by picking up the business section 
of a daily newspaper. I don't understand the rationale for wanting to 
limit the public's access to data on electronic exchanges.
  There is ample evidence that fraud and manipulation can occur and 
have already occurred in the metal sector.
  This was borne out by several scandals over the past decade, 
including the 1996 Sumitomo case. In Sumitomo, it was found that U.S. 
consumers were overcharged $2.5 billion because of a Japanese company's 
manipulation of the copper markets. These were changes that we simply 
could not agree to.
  Why do my cosponsors and I feel so strongly about the need to pass 
this amendment? First, the debate is nothing new. In November of 1999, 
the Federal Reserve, the Department of Treasury, the SEC, and the CFTC 
issued a report on derivatives titled ``Over the Counter Derivative 
Markets and the Commodity Exchange Act, A Report of the President's 
Working Group on Financial Markets.'' This report was signed by the 
Federal Reserve Chairman, the then-Secretary of Treasury, the then-SEC 
Chairman, and the then-CFTC Chairman.
  What the report found was the case had not been made that energy or 
other tangible commodities should be exempted from CFTC oversight. In 
fact, the report found that because of the immaturity of the energy 
market, the lack of liquidity in the market and finite supplies in 
energy markets, energy markets were more susceptible to manipulation 
than the deep and liquid financial markets.
  Recent history has certainly borne that to be correct. These 
commodities are more subject to manipulation.
  On June 21, 2000, shortly after the President's working group issued 
its report, the Banking Committee and Agriculture Committee held a 
hearing on the report and Senator Lugar's Commodity Futures 
Modernization

[[Page 3396]]

Act. Let me read from the committee report:

       The Commission has reservations about the bill's exclusions 
     of OTC derivatives from the Commodities Exchange Act. On this 
     point the bill diverges from the recommendations of the 
     President's Working Group, which limited the proposed 
     exclusions to financial derivatives. The Commission believes 
     the distinction drawn by the Working Group between financial 
     (nontangible) and non-financial transactions was a sound one 
     and respectfully urges the Committees to give weight to that 
     distinction.

  Eight days later, Chairman Lugar marked up his CFMA bill in 
conference. This is what he had to say:

       The Chairman's Mark also addresses concerns regarding this 
     bill's exclusion of institutional energy transactions from 
     the act. Our bill no longer excludes those transactions from 
     the act. With the resolution of this provision, the CFTC has 
     indicated it will fully support our legislation.

  Much to his credit, Chairman Lugar eliminated the exemption for 
energy transactions to accommodate the CFTC and the President's working 
groups. But--and this is a big ``but''--Enron and others lobbied in the 
House and, as it turned out, this was never reflected in the final 
provision that passed Congress as part of a much bigger bill at the end 
of the 106th Congress. There is already a legislative history.
  More recently, the Senate Energy and Natural Resources Committee held 
a hearing on January 29 on energy derivative trading, where CFTC 
Chairman Jim Newsome and FERC Chairman Pat Wood both testified and 
explained the regulatory burdens that prevent them from fully 
investigating Enron Online.
  Let me be candid; I am truly amazed at the opposition to this 
amendment. Why should anyone be able to set up an online trading 
platform without any reporting, disclosure, or capital requirements and 
without any regulatory oversight whatsoever? Why should companies that 
are engaging in an over-the-counter transaction not have to keep a 
record of this transaction? Everyone else does. And why, if there is 
fraud or market manipulation, should there not be a regulatory agency 
that can investigate and cite wrongdoing?
  What I cannot understand is how this amendment is somehow 
antibusiness. On the contrary, the amendment is all about making 
markets work.
  I call your attention to the recently released report by the 
Cambridge Energy Research Associates Study and Accenture titled 
``Energy Restructuring at a Crossroads, Creating Workable Competitive 
Power Markets.''
  The report cites 12 recommendations for making energy markets 
function effectively, including having the CFTC expand its oversight to 
include energy derivative trading, as it did before 2000.
  The report recognizes that transparency, disclosure, and reporting 
requirements instill confidence in markets and provide assurances for 
investors that there will not be fraud and manipulation.
  This is also why the amendment is supported by the Chicago Mercantile 
Exchange, the New York Mercantile Exchange, Cambridge Energy Research 
Associates, Mid-America Energy Holding Company, PG&E, and Southern 
California Edison. They have to pay the higher prices for energy if it 
is traded back and forth. They want to know if these trades increase 
prices for the purposes of manipulation. Calpine, the American Public 
Gas Association, the American Public Power Association, the Texas 
Independent Producers and Royalty Association, the California Municipal 
Utilities Association, the Consumers Union, the Consumer Federation of 
America, the Derivatives Institute, U.S. PIRG, the Transmission Access 
Policy Study Group, and all four FERC Commissioners.
  I would like to read into the Record the letter from the Chairman of 
the Federal Energy Regulatory Commission, Mr. Pat Wood, III, dated 
March 7:

       Thank you for calling to my attention your proposed 
     amendment to clarify federal oversight of financial 
     transactions involving energy commodities. Your amendment 
     would clarify that these transactions are within the 
     jurisdiction of the Commodity Futures Trading Commission, 
     thus revoking current exemption for such transactions under 
     the Commodity Exchange Act and extending the Act to apply 
     comprehensively to financial transactions based on energy 
     commodities.
       From our first meeting last Spring, you know how strongly I 
     feel about customers having access to the broadest range of 
     useful market information. Information on financial as well 
     as physical transactions is a key part of market 
     transparency. Billions of dollars are now at stake in these 
     markets. The consequences of a major participant's collapse 
     are illustrated by the Enron bankruptcy. Federal oversight of 
     such trading is appropriate. Your amendment can ensure 
     greater transparency in these markets, and this transparency 
     can help provide an early warning signal to those charged 
     with protecting the public interest.

  Mr. President, I ask unanimous consent to print other letters in the 
Record.
  There being no objection, the letters were ordered to be printed in 
the Record, as follows:

                                         Edison International,

                                                    March 7, 2002.
     Hon. Dianne Feinstein,
     U.S. Senate, Washington, DC.
       Dear Senator Feinstein: Thank you for asking Edison 
     International for our views on your amendment to S. 517, the 
     Senate Energy Policy Act of 2002. As you know, Edison shares 
     your concern over possible manipulation of the California 
     electricity market by some market participants, which helped 
     contribute to the serious problems the state faced from out 
     of control energy prices. Your amendment would provide for 
     transparency in the electric derivatives trading market, an 
     industry that is currently exempted from regulation under the 
     Commodity Futures Modernization Act of 2000 (CFMA).
       I support your amendment, with a suggestion for your 
     consideration to further refine it. Our company and others 
     use energy derivatives trading to protect and hedge their 
     actual physical assets, as opposed to companies that conduct 
     trading with no or few physical assets. There should be 
     guidance in the final language which recognizes the 
     difference between these two types of businesses, 
     particularly regarding any further capital requirements. 
     Otherwise companies that trade in order to hedge physical 
     assets may be required to pay twice--once in order to obtain 
     capital for the assets and a second time in order to meet any 
     capital requirements to back their trades.
       Thanks again for all your efforts on behalf of California 
     consumers and businesses.
            Sincerely,

                                               John F. Bryson,

                                         Chairman of the Board and
     Chief Executive Officer.
                                  ____



                                             PG&E Corporation,

                                    Washington, DC, March 6, 2002.
     Hon. Dianne Feinstein,
     U.S. Senate, Hart Senate Office Building, Washington, DC.
       Dear Senator Feinstein: We are writing today in reference 
     to the amendment you will be offering to the Senate Energy 
     bill, containing the substance of legislation you and several 
     of your colleagues introduced earlier to provide regulatory 
     oversight over energy trading markets, as amended.
       At the outset, we applaud your efforts to ensure public and 
     consumer confidence in the operation and orderly functioning 
     of the energy marketplace. As you know, the industry relies 
     heavily on these markets and products to manage risk for the 
     benefit of consumers of electricity. We thus appreciate your 
     willingness to work with us and other market participants to 
     address areas of interest and concern as the provisions of 
     your amendment have been debated and refined. As presently 
     drafted, we view your amendment as providing an increased 
     level of oversight, while ensuring the continued ability of 
     market participants to utilize these instruments as part of 
     overall risk management strategies. We therefore support your 
     amendment.
       Thank you for your hard work in this area, and we look 
     forward to continuing to work with you and others on matters 
     of national energy policy.
           Sincerely,
     Steven L. Kline,
       Vice President, Federal Governmental & Regulatory 
     Relations.
                                  ____



                              Midamerican Energy Holdings Co.,

                                         Omaha, NE, March 5, 2002.
     Hon. Dianne Feinstein,
     U.S. Senate,
     Washington, DC.
       Dear Senator Feinstein: I am writing in support of your 
     effort to ensure that there is transparency and appropriate 
     federal oversight of energy futures trading markets.
       As I testified before the Senate Energy and Natural 
     Resources Committee last month, I have long been concerned 
     that the type of exchange run by Enron before its collapse 
     offered opportunities for manipulation. Enron was the largest 
     buyer, the largest seller and the operator of an unregulated 
     exchange. In view of the revelations of the last several 
     months regarding Enron, the unregulated nature of these 
     markets has raised serious concerns regarding the ability of 
     the federal

[[Page 3397]]

     government to ensure that energy trading and futures markets 
     are operating in the interest of the public and market 
     participants.
       As the Senate addresses this issue, it is important to 
     remember that electric and gas markets as a whole responded 
     to the Enron collapse without disruption, so legislation 
     should not compromise the liquidity of these markets. I 
     applaud your determination to keep your amendment focused on 
     oversight and transparency and am encouraged that you, along 
     with Senators Cantwell and Wyden, have pledged to work with 
     market participants to continue to perfect this proposal as 
     debate on the comprehensive energy bill continues.
       Ensuring public confidence in the integrity of energy 
     futures markets is a critical component of establishing a 
     modernized regulatory framework for the electric and natural 
     gas industries. I am pleased to support your effort and 
     commend you on your work on this important issue.
           Sincerely,
                                                   David L. Sokol,
     Chairman and CEO.
                                  ____



                            American Public Power Association,

                                    Washington, DC, March 7, 2002.
     Hon. Dianne Feinstein,
     Senate Hart Building,
     Washington, DC.
       Dear Senator Feinstein: On behalf of the American Public 
     Power Association (APPA), an association representing the 
     interests of more than 2000 publicly owned electric utility 
     systems across the country, I would like to express support 
     for your amendment regarding the regulatory treatment of 
     energy derivative transactions which is expected to be 
     offered during consideration of S. 517, the Energy Policy Act 
     of 2002.
       As we understand it, your amendment repeals exemptions and 
     exclusions from regulation, originally granted by the 
     Commodity Futures Trading Commission, for bilateral 
     derivatives and multi-lateral electronic energy commodity 
     markets. Further, your amendment helps ensure that entities 
     involved in running on-line trading forums maintain open 
     books and records for investigation and enforcement purposes. 
     Ensuring sufficient regulatory oversight and market 
     transparency are critical steps towards helping prevent 
     market abuses and protecting consumers.
       As you are aware, on December 3rd Enron filed for Chapter 
     11 bankruptcy protection. At the same time, forward markets 
     on the West Coast fell by 30% despite the fact that no other 
     changes in operations, hydroelectric supply, or fossil fuel 
     prices took place at the time. This has led some to believe 
     that Enron may have been using its market dominance to 
     ``set'' forward prices. Your amendment will help avoid such 
     potential abuses in the future.
       APPA commends you for taking a leadership role on this 
     critical issue. We look forward to working with you on this 
     and other amendments aimed at providing effective and 
     sustainable competition while protecting consumers from 
     market abuses.
           Sincerely,
                                               Alan H. Richardson,
     CEO & Executive Director.
                                  ____



                                                Calpine Corp.,

                                    Washington, DC, March 7, 2002.
     Hon. Dianne Feinstein,
     Hart Senate Office Building, U.S. Senate, Washington, DC.
       Dear Senator Feinstein: I am writing to let you know of 
     Calpine's support for additional oversight of certain energy 
     derivative markets, as intended by your proposed amendment to 
     S. 517. While we have not seen any evidence that energy 
     trading was the cause of either the California energy crisis 
     or Enron's demise, we do believe there is a crisis of 
     confidence in the energy markets and that your amendment will 
     assist in restoring much needed public confidence in the 
     energy sector.
       We support the amendment's strengthening of the CFTC's 
     anti-fraud and anti-manipulation authority and its provision 
     for increased cooperation and liaison between the CFTC and 
     the FERC. We are also pleased that your amendment addresses 
     concerns about the oversight and transparency of the 
     electronic trading platforms. It is important that such 
     facilities, which play a significant price discovery role in 
     the energy trading markets, be subject to appropriate 
     reporting and oversight by the CFTC.
       However, I also understand that typical over the counter 
     bilateral trading operations, such as those that operate from 
     a trading desk where various potential counterparties are 
     separately contacted by phone or email, are not intended to 
     be treated as electronic trading facilities under your 
     amendment. This is an important distinction and one that I 
     understand you intend to further clarify in report language.
       Calpine would like to thank you for your efforts to 
     advocate reasonable measures to ensure the integrity of the 
     important energy trading markets and we stand ready to 
     provide you with any information or assistance that you may 
     need.
           Sincerely,
                                                  Jeanne Connelly,
     Vice President--Federal Relations.
                                  ____

                                        Austin, TX, March 6, 2002.
     Hon. Dianne Feinstein,
     U.S. Senator, Hart Senate Office Building, Washington, DC.
       Dear Senator Feinstein: We understand that later today, you 
     will introduce an important measure designed to bring greater 
     transparency to natural gas markets. We believe that improved 
     transparency will reduce price-markups charged in 
     transactions that take place after natural gas leaves the 
     wellhead and before it reaches the burner tip. Thus your 
     measure will benefit both consumers and producers. We support 
     the modified version of S. 1951 that you intend to offer as 
     an amendment to the Senate Energy Bill.
       We understand that the amendment:
       (1) will not grant any price control authority under the 
     Federal Power Act or Natural Gas Act;
       (2) will continue to allow energy commodities (actually all 
     commodities other than agricultural commodities) to be traded 
     on electronic trading facilities that currently qualify as 
     exempt commercial markets, provided that the trading 
     facilities register, meet net capital requirements, file 
     reports, and maintain books and records;
       (3) will require participants in such markets to maintain 
     books and records; and
       (4) will apply these requirements to electronic trading 
     facilities which permit execution with multiple parties and 
     non-binding bids and offers, and will require books and 
     records to be kept by participants in facilities that permit 
     bilateral negotiations.
       TIPRO believes that this measure will tend to improve price 
     transparency in natural gas markets, leading to a more 
     efficient and stable marketplace. The relatively modest 
     requirements outlined above should not unduly reduce 
     liquidity for gas traders. Accordingly, TIPRO endorses your 
     amendment.
           Sincerely,
                                                 Gregory Moredock,
     National Energy Policy Committee Chairman.
                                  ____



                              American Public Gas Association,

                                       Fairfax, VA, March 5, 2002.
     Re: S. 517

     Hon. Dianne Feinstein,
     Hart Senate Office Building, U.S. Senate, Washington, DC.
       Dear Senator Feinstein: The American Public Gas Association 
     (APGA) is very pleased that you have taken the lead to amend 
     the Commodity Exchange Act (CEA). You revisions to S. 517, 
     which amends the CEA, brings the trading of energy products, 
     including natural gas spot and forward prices, under the 
     appropriate jurisdiction of Commodity Futures Trading 
     Commission (CFTC). As a result, your amendment will reduce 
     the various risks imposed on consumers by a partially 
     unregulated energy trading market.
       As you know, Enron operated in what was essentially an 
     unregulated environment. While there will be much more to 
     come in the wake of Enron, one thing is perfectly clear 
     today--our federal government has an obligation to make sure 
     that no important trading activities fall between the cracks 
     leaving some energy markets without a federal agency with 
     oversight authority. Your amendment remedies this glaring 
     deficiency.
       APGA is fully committed to support your effort to reverse 
     the action Congress took just 15 months ago in the 
     Commodities Futures Modernization Act (CFMA). The CFMA 
     amended the CEA by allowing some energy contracts to be 
     traded with no government oversight. We firmly believe that 
     the CFTC must have at its disposal the necessary jurisdiction 
     and authority to protect the operational integrity of energy 
     markets so that (1) transactions are executed fairly, (2) 
     proper disclosures are made to customers, and (3) fraudulent 
     and manipulative practices are not tolerated.
       In December of 2000, when the CFMA was under consideration 
     in the Senate, APGA submitted a Statement for the Record to 
     the U.S. Senate Committee on Energy and Natural Resources 
     during a hearing on the ``Status of Natural Gas Markets.'' In 
     the statement, we expressed a concern that the proposed 
     legislation would codify an exemption for energy commodity 
     transactions that would shield those energy transactions from 
     the oversight and review of the CFTC. Enron took advantage of 
     this gap in regulatory oversight. Your amendment will close 
     that gap. Consumers across the country will benefit from your 
     efforts because they are less likely to be victimized by 
     activities that occur in a market where the CFTC exercises 
     oversight.
       Again, public gas utilities and the hundreds of communities 
     that we serve commend you for your thoughtful and deliberate 
     leadership on this very important issue. While there may be 
     some who will oppose this amendment, one need not look far to 
     see whether the opposition is looking out for the best 
     interests of Wall Street or Main Street. We pledge to work 
     with you in any way we can to pass this much-needed 
     amendment. Please let me know how I can assist you.
           Sincerely,
                                                         Bob Cave,
                                                        President.

[[Page 3398]]

     
                                  ____
                                            U.S. Commodity Futures


                                           Trading Commission,

                                    Washington, DC, March 7, 2002.
     Hon. Dianne Feinstein,
     U.S. Senate,
     Washington, DC.
       Dear Senator Feinstein: Thank you for calling to ask that I 
     provide you with my views of your proposed amendment to the 
     energy bill pending before the Senate. The amendment would 
     bring transparency to markets and provide Congress and the 
     public with the assurance that no exchange offering energy 
     commodity derivatives transactions would go completely 
     unregulated. Moreover, it would restore to the federal 
     government those basic tools necessary to detect and deter 
     fraud and manipulation. Therefore, I strongly support the 
     amendment.
       In my previous correspondence with you, I indicated that 
     under the current law none of our federal regulators could 
     give you any definitive assurance that there was no 
     manipulative or fraudulent activity in energy markets in the 
     wake of the Enron collapse. This is due, in part, to the lack 
     of transparency demanded of energy markets and more 
     significantly to the fact that certain exchange markets such 
     as EnronOnline are completely unregulated.
       Consumers are the ultimate beneficiaries of properly 
     functioning derivatives markets, whether those markets are 
     private--like EnronOnline--or public--like the New York 
     Mercantile Exchange. By the same token, consumers are the 
     ultimate victims when markets are manipulated, or otherwise 
     affected by unlawful behavior.
       I am a firm believer in the efficiencies that derivatives 
     markets bring to bear on cash commodity markets and the 
     consequent benefits to market users and to consumers. 
     However, such derivatives markets should, in the public 
     interest, adhere to certain, minimal regulatory obligations. 
     Your amendment is a prudent response to the issues 
     highlighted by the Enron episode.
           Sincerely,
                                               Thomas J. Erickson,
                                                     Commissioner.

  Mrs. FEINSTEIN. I thank the Chair.
  To summarize, if the western energy markets over the past 2 years 
have shown us anything, it is that the light of day and records must be 
available on all transactions. If the western energy markets and 
California have shown us anything, it is that there must be Federal 
oversight. And if what has happened in the last 2 years tells us 
anything, it is that the trading of these particular commodities should 
not be in secret.
  Mr. President, this amendment aims to clear up those three points. It 
does so. I recognize there is opposition. I recognize the banks oppose 
it. Why do the banks oppose it? Because they have set up an online 
trading exchange, the IntercontinentalExchange, to do just what Enron 
Online did. Dynegy opposes it. Williams opposes it because they are 
doing the same thing now.
  There is this burgeoning market of trading up the price of energy in 
secret. It is wrong. The light of day must be shed on it, and it should 
be treated as are all other aspects of trades. My cosponsors and I feel 
very strongly about this.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Chair recognizes the Senator 
from Texas.
  Mr. GRAMM. Mr. President, how can a case be more overwhelming than 
the case of the Senator from California? Who could possibly be in favor 
of a situation where transactions could be undertaken and no records 
kept? Who could possibly be in favor of granting a license for fraud 
and manipulation? The answer is no one.
  The problem is that each of these points that is outlined has no 
factual basis in the law. The plain truth is that there is extensive 
recordkeeping currently required under law. That recordkeeping was 
strengthened in the 2000 extension of the authorization of the 
Commodity Exchange Act. I will read from the legislation as we get to 
it.
  The 2000 Act provided specific antifraud authority for the CFTC in 
exactly the areas for which the Senator from California calls. It 
provided authority to intervene in the case of price manipulation. In 
fact, everything that the proponents of this amendment claim they are 
for is part of current law as amended by the 2000 Act.
  I have offered and we have negotiated--and I thank the Senator from 
California for the negotiations--to try to work out an agreement so 
that we can have an amendment go forward with broad support. We have 
failed to succeed in that effort, and I will outline in a moment why we 
have failed to do that.
  Before I do, let me start at the beginning. This amendment has as 
strong a coalition of opponents as any amendment that has been offered, 
and not one of them opposes what the proponents of the amendment say 
they want to do. Not one of them opposes required recordkeeping. Not 
one of them opposes the granting of antifraud authority. Not one of 
them opposes granting the ability to intervene in the case of price 
manipulation. Every opponent of this amendment favors what the 
proponents of the amendment say that it does, but they oppose what the 
amendment in fact does.
  I will read from the list of the opponents: Alan Greenspan, 
testifying twice before committees of Congress--the Financial Services 
Committee in the House and the Banking Committee in the Senate. In as 
strong words as Alan Greenspan ever utters and in as clear a form as he 
could possibly pronounce it, he opposes this amendment, not because he 
opposes the intent of the Senator from California, but because he 
opposes what the amendment, if adopted, would do--the unintended 
consequences--which is what this debate is about.
  The Secretary of the Treasury is adamantly opposed to this amendment 
and has joined Chairman Greenspan in talking about the potential 
impacts on the American economy of a decision we would make in this 
proposal that has nothing to do with energy futures but everything to 
do with a swap industry which is now $75 trillion in annual volume and 
which has become part of virtually every business in America where that 
business tries to insure itself against risk.
  These swaps are tailored transactions between two economic entities 
that are able, through their transaction, to provide greater certainty 
in providing jobs, growth, and opportunity for the American economy. In 
fact, Chairman Greenspan has said that the growth in the derivatives 
markets may very well be a major factor in the resilience of the 
American economy today and why we, in fact, did not have a recession.
  I urge my colleagues to read the letter which the Secretary of the 
Treasury and the Chairman of the Board of Governors of the Federal 
Reserve System sent to the two leaders.
  I ask unanimous consent the letter to which I just referred be 
printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                                   March 12, 2002.
     Hon. Trent Lott,
     U.S. Senate,
     Washington, DC.
       Dear Senator Lott: We are writing to express our serious 
     concerns with an amendment to be offered by Senator Feinstein 
     and others to S. 517, the national energy policy bill. We are 
     committed to ensuring the integrity of the nation's energy 
     markets. However, we question whether it is necessary to 
     reopen the Commodity Futures Modernization Act of 2000 (CFMA) 
     to achieve that objective. Amending the CFMA as proposed by 
     Senator Feinstein could re-introduce legal uncertainties into 
     off-exchange derivatives markets and other markets--
     uncertainties that were thought to have been settled as a 
     result of the CFMA's enactment.
       Accordingly, we urge Congress to defer action on Senator 
     Feinstein's proposal until the appropriate committees of 
     jurisdiction have a change to hold hearings on the amendment 
     and carefully vet the language through the normal committee 
     processes.
       The CFMA expressly maintained the Commodity Futures Trading 
     Commission's (CFTC) anti-fraud and anti-manipulation 
     authority with respect to off-exchange energy derivatives 
     markets covered by the Commodity Exchange Act (CEA). Thus, it 
     appears that the CFTC may have sufficient current authority 
     to address instances of fraud or price manipulation in energy 
     derivatives markets. Congress should carefully evaluate the 
     adequacy of the CFTC's current authority before it attempts 
     to re-open the CFMA.
       The CFMA was the culmination of a long, difficult process, 
     which provided much needed clarification regarding the scope 
     of the CEA for all off-exchange derivatives instruments, not 
     just energy products. Any effort to undo the delicate 
     compromises achieved in that legislation should be undertaken 
     only after careful reflection. Otherwise, such legislation 
     could jeopardize the contribution that off-exchange 
     derivatives have made to the dispersion of risk in the 
     economy. These

[[Page 3399]]

     instruments may well have contributed significantly to the 
     economy's impressive resilience to financial and economic 
     shocks and imbalances.
       Similar letters have been sent to Senators Harkin, Lugar, 
     Sarbanes, Gramm, and Daschle.
           Sincerely,
     Paul H. O'Neill,
       Secretary, Department of the Treasury.
     Alan Greenspan,
       Chairman, Board of Governors of the Federal Reserve System.

  Mr. GRAMM. This amendment is also opposed by the Securities and 
Exchange Commission, which has the principal responsibility in the 
American economy for antifraud and antimanipulation enforcement with 
regard to securities transactions. If their whole purpose in existing, 
if their major mandate, is to deal with exactly the problems which the 
amendment proposes to deal with, why is the SEC adamantly opposed to 
this amendment? Because of unintended consequences, because the 
amendment, in fact, does not achieve its stated goals, but it does 
other things that are potentially very harmful to the economy.
  The Chairman of the Commodity Futures Trading Commission, the very 
Commission that would be empowered by this amendment, has come out in 
very strong opposition to the amendment. This amendment is opposed by 
the International Swaps and Derivatives Association, the American 
Bankers Association, the ABA Securities Association, the Financial 
Services Roundtable, the Futures Industry Association, the Securities 
Industry Association, and the Chamber of Commerce of the United States.
  Why would the Chamber of Commerce of the United States be opposed to 
this amendment? Are they in favor of fraud, manipulation, and the 
absence of recordkeeping? No. They are concerned that the amendment 
will have a harmful effect outside the futures area as it relates to 
natural gas and electricity, and, in the process, will do harm to the 
entire economy.
  This amendment is strongly opposed by the National Mining 
Association. I can understand bringing Enron into the debate as it 
relates to natural gas and electricity, but why we should bring in 
mining I do not understand. There will at some point in this debate be 
an amendment which is part of our disagreement, to focus the provisions 
of this amendment on natural gas and electricity. If that is the 
concern, then why not focus the attention on that concern rather than 
getting into areas such as metals? I have seen no evidence--in fact, I 
will point out that Chairman Greenspan has seen no evidence--that 
derivatives trading by Enron, or by anybody else, had anything to do 
with the energy spike in prices in California.
  Going back to the beginning, first of all, this is a debate I was 
pulled into when the 2000 bill was written. The provision relating to 
energy was written in the House, and the version of those provisions 
that finally passed in the House and came to the Senate was never 
changed again. My concern about the bill at the time, that held the 
bill up for 3 months and almost killed the bill at the end of 2000 in 
the final session of that Congress, the lameduck session of that 
Congress, had to do with exactly the issue which is before us, and that 
is unintended consequences.
  Nobody in the Senate knows what a derivative is, and I speak for 
myself in saying that deep down I have a conception of what a 
derivative is. I might pass a freshman course in finance in college in 
giving a definition of derivative, but these are very complicated, 
tailored instruments, each instrument being unique, which is why it 
has, from the very beginning of its trading, been deregulated.
  One of the arguments that has been made over again, as the debate on 
this amendment has started, is that somehow the 2000 legislation 
exempted these derivatives and swaps from regulation. That is totally 
false, totally inaccurate. They have never been regulated. In fact, 
Congress acted in passing the Futures Trading Practice Act in 1992 to 
give the CFTC specific power to exempt these derivatives and swaps as 
being inappropriate for regulation under the CFTC, which has the job of 
regulating futures, not tailored swaps between sophisticated customers. 
The Congress passed the Futures Trading Practice Act in 1992 that 
directed the CFTC to grant these exemptions. Those exemptions were 
granted. The exemption for energy was granted under the Clinton 
administration with a Democrat Chairman of the CFTC. That issue has 
never been controversial before. Nor have these swaps and derivatives 
ever come under Federal regulation in terms of an ongoing regulatory 
process.
  In fact, the 2000 Act, far from exempting something which had never 
been subject to regulation, added to the strength of the CFTC exactly 
the powers that the proponents of this amendment would like us to 
believe their amendment does, and they believe their amendment does. 
There is no bad faith on this amendment. It is simply trying to 
understand very complicated issues when no Member of the Senate knows 
what a derivative is. It is very difficult to understand what swaps 
are, impossible to comprehend a $75 trillion industry. Unless one is 
directly involved in mining, banking, or securities, it is very 
difficult for me to comprehend what this whole market is about.
  All I know is, it has grown to $75 trillion. It is the envy of the 
world, and Alan Greenspan, who is not the embodiment of God's voice on 
Earth, when it comes to financial matters in the U.S. economy, speaks 
with more knowledge and more authority than anybody else when he says 
that disturbing these markets could have a detrimental impact on the 
economy and that the resilience of the economy in the face of the 
recession might very well have been due to the growth of this 
derivatives market. I say at least let's put a little sign up that 
says: Danger, high voltage. Do not be fooling around in here if you do 
not know what you are doing.
  Let's talk about these issues. As we have listened to these speeches 
and been moved by them--I have been moved by them to support the intent 
of the amendment--we are really not far apart, and I will outline where 
we differ.
  First of all, let me quote from the 2000 Act that the Congress 
adopted in the waning days of the session in the year 2000. I will go 
to page 43 of the Senate companion bill, S. 3283. This is in paragraph 
(4) of section 2(h) of the Commodity Exchange Act. Paragraph (4)(B) 
gives the Commodity Futures Trading Commission the power to intervene 
and enforce any action where fraud is present.
  In listening to the proponents of this amendment, one would believe 
there is no power whereby the CFTC can intervene in cases of fraud. Not 
only does that power exist, but it was strengthened in the 2000 
legislation, a provision written in the energy section of the bill in 
the House of Representatives.
  In paragraph (4)(C), we have the provision relating to price 
manipulation, and the Commission is given the power to intervene in 
cases where price manipulation occurs.
  As we have listened to this debate, we have heard the question, well, 
how can you do anything if these markets are conducted with no records?
  I will read the language of the bill in paragraph (4)(D):

       . . . such rules and regulations as the Commission may 
     prescribe if necessary to ensure timely dissemination by the 
     electronic trading facility of price, trading volume, and 
     other trading data to the extent appropriate, if the 
     Commission determines that the electronic trading facility 
     performs a significant price discovery function for 
     transactions . . .
  It then goes on and specifically outlines the power of the 
Commission. Now, let me make it clear that I am in favor of, and will 
support, strengthening these provisions. I am in favor of giving the 
CFTC the power to require that records be kept, to require that they be 
kept to the level so that you can reconstruct the transaction, to 
require that the data under the Commodity Exchange Act be kept for 5 
years so that you can reconstruct individual transactions. I am willing 
to support--and so are all the opponents of this bill, as far as I am 
aware--strengthening antiprice manipulation and strengthening the anti-
fraud provisions.

[[Page 3400]]

  The point I want to make is these provisions are already law, and 
they are in the 2000 Act. To the extent they can be strengthened 
without affecting other markets that are in no way related to 
electricity and natural gas so that we can deal with what the 
proponents of this amendment intend to achieve, I am in favor of it. 
The problem is the amendment, as now written, does many things that go 
beyond this. If we can focus it on electricity and natural gas, if we 
can limit it to these provisions, we would have an agreement, and I 
assume we would get a unanimous vote.
  But here are some problems, and let me outline them. First of all, 
everybody needs to understand that we have a wholesale market for swaps 
and derivatives, tailor-made products. These are products that are not 
sold on exchanges. Let me make it clear. I have been chairman of the 
Banking Committee. I have worked with the exchanges in Chicago and New 
York. As we say in our business, I have many friends who are associated 
with the exchanges in Chicago and New York. But when they go to bed 
every night and they say their prayers, they say: God, please kill the 
$75 trillion swaps industry and make those people buy these derivatives 
and swaps on my market and pay me a commission and buy them in 
thousand-unit lots. If you love me, God, please do this for me. Now, it 
may hurt the American economy, but it would be so good for me.
  Now, there is an element of that going on here. There was an element 
of it going on in the 2000 Act. There has been an element of it going 
on forever. People try to promote their own interests, we understand 
that. There is no issue where all the special interests are on one 
side. There seems to be a conception that we try to perpetrate that 
there is good and there is evil and there are special interests and 
public interests and they are competing against each other. The plain 
truth is normally there are special interests all over the ballpark. 
And that is not all bad. I will note that I have always felt if you are 
going to catch hell no matter what you do, even lawmakers will do the 
right thing.
  There has been an ongoing effort, since the emergence of derivatives 
and swaps, to force them on to the futures exchanges. I could give you 
a long and, in this case, happy history. It will suffice to simply say 
this: First of all, these swaps have never been sold on market 
exchanges such as the Chicago Mercantile Exchange, Chicago Board of 
Trade, the New York Mercantile Exchange. They sell standardized 
products at both the wholesale and retail level. When we are talking 
about swaps, we don't have a retail swap industry in America. When the 
2000 bill was written--and I was involved in those sections of that 
legislation that had to do with banking products--we simply allowed the 
swaps business as it related to wholesale users, namely banks, 
securities companies, manufacturers, et cetera, to function on an over-
the-counter basis. We agreed that the case would be different should a 
retail market ever occur in these products--that is, a situation where 
individuals would buy them; your aunt might buy one. I can't imagine, 
and I would not advise that, I would not do it--but we agreed in the 
2000 bill, in the bank products section of the bill that if a retail 
market ever came into existence, at that point a decision would be made 
as to who would regulate it and how.
  Now, these products have never been under regulation, are not sold on 
exchanges; they are individually negotiated instruments, highly 
sophisticated and, obviously, they yield great value because people buy 
and sell them--$75 trillion worth. Alan Greenspan, as I said, said 
these have now become a mainstay and a stabilizing influence in the 
American economy.
  Here are the problems that I see with the amendment as it is written. 
I will elaborate some on each of them. First of all, it permits the 
CFTC to regulate contracts regardless of whether they are futures 
contracts. The CFTC has jurisdiction over futures. It does not have, 
never has had, and I hope never will have jurisdiction over non-futures 
derivatives or swaps at the wholesale level. As the amendment is now 
written, it would impose CFTC regulations on companies operating 
electronic bulletin boards, where bids and offers are posted for 
various commodities--facilities such as Blackbird, as one example--even 
if futures contracts are not traded on those bulletin boards. My view 
is, if our objective is to provide more information--and I am for more 
information--why should we be taking action to kill off bulletin boards 
that are simply providing purchase and sale prices to customers?
  Another point, this amendment--and I don't quite understand why it 
does it--would make the use of advanced technology a trigger for CFTC 
regulation, so that if a bank or an insurance company, or an investment 
company sets up an electronic computer system whereby people can come 
together, negotiate, purchase, and sell a swap or a derivative, if they 
use the computer to do it, they could come under regulation. If they do 
the same transaction over the phone, they don't come under CFTC 
regulation.
  This amendment brings under the Commodity Exchange Act and under the 
jurisdiction of the CFTC instruments that are not futures. The CFTC is 
an agency that is trained and has expertise in futures; that is, say 
that I am contracting to deliver natural gas at the hub in Louisiana on 
a certain date, and so I sell a future for that delivery, and someone 
buys it. That is the kind of transaction that the CFTC is chartered to 
regulate. It is not chartered, nor has it ever been chartered, nor has 
it ever regulated, these tailored swaps and derivatives.
  Let me quote Alan Greenspan because he has gone out of his way to 
make statements on this, and he has been asked questions about this. 
Since this has been raised in relation to energy and to California, in 
particular, let me just, if I can, go through some of the things Alan 
Greenspan has said without wasting everybody's time in reading huge 
volumes of statements. Chairman Greenspan of the Federal Reserve Board 
on March 7, 2000, stated before the Senate Banking, Housing, and Urban 
Affairs Committee that with respect to the existence of a nexus between 
energy derivatives and Enron's demise: ``I haven't seen any.''
  Alan Greenspan said, when questioned before the Banking Committee, 
that he saw no relationship between derivatives and the demise of 
Enron. In fact, the derivatives part of Enron has subsequently been 
sold to another company that is in the process of reinvigorating it, 
creating 800 jobs, and paying off some of the debt of Enron, including 
debt to employees. This is a part of Enron that is alive and well, 
though not under the control of Enron, which as we know is in 
bankruptcy.
  Chairman Greenspan stated before the House Banking Committee on the 
same issue:

       What I sense happened is that they ran [why Enron failed] 
     into losses which they basically endeavored to obscure. It 
     had nothing to do with derivatives.

  I could go through the quotes in greater detail, but when asked, Did 
derivatives have anything to do with the price hike in California? 
Chairman Greenspan said no. When asked if they had anything to do with 
the failure of Enron, he said it had nothing to do with derivatives.
  He also stated before the Senate Banking Committee on March 7:

       We've got to allow for that system to work because if we 
     step in as government regulators we will remove a 
     considerable amount of caution.

  In other words, not only did he say he was concerned about us getting 
into other areas, but he was concerned, if we had more Government 
regulation of these sophisticated instruments, people would come to 
rely on the Government and actually might be less cautious in financial 
matters.
  I quote the following:

       I think that act [the 2000 commodity exchange 
     reauthorization] in retrospect was a very sound program, 
     passed by the Congress, and I don't see any particular need 
     to revisit any of the issues that were discussed at length at 
     this time.

  Let me read what he said in particular in response to a question by 
Senator Miller of Georgia who asked

[[Page 3401]]

the following question, and I am reading from the raw transcript. In 
response to Senator Miller of Georgia who asked whether there is a 
nexus between energy derivatives, including their regulation and the 
California energy crisis, here is what Chairman Greenspan said:

       We don't need to revert to derivatives to get a judgment as 
     to why prices did what they did. My recollection is that 2 
     years ago or so the sort of capacity buffer that the 
     California electric power system has was the typical 15 
     percent for its summer back loads, which is what generally a 
     regulated industry has because you respectively guarantee a 
     rate of return on capability which is not being used, but 
     that 15 percent kept prices down. As the years went on, the 
     demand went up in California and no new capacity came on 
     stream. That 15 percent gradually dissolved because there's 
     no way to have inventory of electricity--there are battery 
     systems--but they are just inadequate. You get into a 
     situation where the demand load, if it is running up against 
     a limited capacity and the demand tends to be price 
     inelastic, you can get some huge price spikes. So you don't 
     need derivatives to explain what happened to price.

  Now, let me try to sum up because I have covered a lot of areas.
  Mr. LOTT. Will the Senator yield?
  Mr. GRAMM. I am happy to yield.
  Mr. LOTT. With all due respect to the Senators in the Chamber who 
perhaps understand this issue, I have serious doubts how many Senators 
really understand what we are talking about here. I was trying to 
understand what the Senator was saying, and it sounds pretty 
complicated to me. I hope we won't do a test here to ask Senators to 
define what a derivative is. In fact, we have been checking Webster's, 
trying to make sure we understand the definition of derivative. After 
having read the definition, I don't think it clears up anything.
  Who has jurisdiction of this? Is it the Agriculture Committee or is 
it the Banking Committee?
  Mr. GRAMM. They both have jurisdiction. The Agriculture Committee has 
jurisdiction as it relates to fundamental commodities. The Banking 
Committee has jurisdiction as it relates to financial products. You 
have a problem in that the amendment applies not just to futures but to 
other derivatives and to swaps, which are under the jurisdiction of the 
Banking Committee.
  The problem is, the last time we dealt with this area, we spent 4 
months dealing with it in committee. We dealt with it extensively in 
debate and conference and ended up, in total, taking about 7 months to 
deal with it.
  Mr. LOTT. Has this amendment been considered or had hearings in 
Banking, or in Agriculture, as to its implications and what the impact 
would be?
  Mr. GRAMM. No.
  Mr. LOTT. Isn't this clearly an extremely complicated area with which 
we are dealing?
  Mr. GRAMM. There are two approaches, it seems to me, that make sense. 
One is to call on the major agencies--the Fed, the SEC, and the CFTC--
to take a look at the amendment on a truncated basis, say 45 days, and 
give a comprehensive report and definition. That would be one approach.
  The other approach would be to try to work out the concerns that the 
SEC and the Federal Reserve have raised. Those concerns are trying to 
narrow this down to electricity and natural gas, which is the real 
concern.
  Mr. LOTT. If the Senator will yield, I was under the impression there 
had been serious and extended negotiations between yourself and Senator 
Feinstein and perhaps others in trying to work out a compromise.
  Mr. GRAMM. There were serious negotiations. I think Senator Feinstein 
made a good effort on her part. Senator Fitzgerald was involved. When 
it got right down to it, an agreement could not be reached on the 
narrowing of this to include futures but not swaps and or other 
derivatives, to focus it just on electricity and natural gas, which is 
where the concern is.
  The reason Chairman Greenspan has chosen to speak out on this on 
three different occasions, the reason he has talked to Members, and 
when they called him, called them back, is that he is very concerned 
about unintended consequences. The problem is it is hard to debate 
unintended consequences.
  Mr. LOTT. One final point and I will let the Senator give his 
summation. This is a very complicated area that could have unintended 
consequences, no question. We should not be trying to write legislation 
in this area in the Senate without very careful thought and 
consideration by committees. I think it is a very serious mistake to be 
considering this amendment in this way.
  Just so Senators will understand, Webster's defines ``derivative'' 
as:

       The limit of the ratio of the change in a function to the 
     corresponding change in its independent variable as the 
     latter change approaches zero.

  I am sure you got that. That makes my point. We don't know what we 
are doing here, and we should not be acting in this area.
  Mr. DORGAN. Will the Senator from Texas yield for a question?
  Mr. GRAMM. I am happy to yield for a question.
  Mr. DORGAN. Mr. President, the minority leader was asking about the 
definition of a derivative. I ask the Senator from Texas, could he not 
find the definition of a derivative by talking to people who used to 
run Long Term Capital Management? As the Senator from Texas will 
recall, it lost a fortune sufficient so that it almost took down the 
American economy.
  The Fed had to have a Sunday night rescue package to try to prevent 
LTCM from collapsing. I would expect an awfully good definition of 
derivatives. They are risks that are now falling through the cracks of 
regulators, which come from an understanding of Long Term Capital 
Management.
  Mr. GRAMM. If the Senator will yield, I would respond that, if we had 
a hearing, I do not think they would be the people we would call on to 
give us advice. I was thinking of the Chairman of the SEC, perhaps 
former Chairmen, the Chairman of the Commodity Futures Trading 
Commission, the Chairman of the Board of Governors of the Federal 
Reserve System.
  I might say about Long Term Capital, that they went broke by making 
bad decisions. They didn't go broke because of the existence of 
financial instruments. They went broke because they made bad choices in 
the use of those instruments. You cannot blame the instrument. It is 
like blaming thermometers--saying I hate thermometers because every 
time they register above 100 degrees it is hot. It is not the 
thermometer's fault. So it is clear that we have had people go broke. I 
guess my feeling is that we simply need to know more about this.
  As I have said from the beginning, if we can make some simple changes 
in this I could be for it, and I believe everybody who I quoted here 
today would be for it. Let me just tell you what the amendments would 
be.
  First of all, the focus of this amendment is supposed to be on 
natural gas and electricity. The problem is, when you get into energy 
in general, and also into metals, you cast a very wide net. And while 
the plain truth is--and I believe it--that there is no evidence to 
substantiate any claim that the price spike in California had anything 
to do with the existence of derivatives on natural gas and on 
electricity, under the circumstances and especially given the precedent 
set in the 2000 law, I am in favor of, and I believe everyone who 
opposes the amendment is in favor of, strengthening the provisions of 
law related to antimanipulation, anti-fraud, and recordkeeping. That 
much we agree to. That part of the amendment is agreed to.
  But I believe, and all these other groups from the bankers to the 
Federal Reserve Board, to the SEC, to the CFTC believe, that one of the 
ways you could improve this--they are all still very nervous about this 
amendment, even if we made all these changes--but if you could narrow 
it just to electricity and natural gas they would see that as an 
improvement.
  The amendment is about the CFTC, and it ought to be about futures, 
not about swaps. That is getting into another agenda, and that agenda 
is basically expanding markets on exchanges. And we should not be 
getting involved in deciding where a product is bought and sold and who 
ought to be buying and selling and who should benefit economically and 
who should not.

[[Page 3402]]

  This whole question of capital is a very important issue. At the risk 
of just overstating the case and oversimplifying, this is the problem. 
Many of these mechanisms, whereby trades are sold--or undertaken--just 
bring buyers and sellers together. They never take ownership of the 
derivative or the swap. So to make them put up capital based on the 
transactions, if they don't ever take ownership, how does it make any 
sense to make them put up some part of $75 trillion when none of their 
own money is at risk?
  So that requirement, if you are not very careful, ends up killing off 
the market for no purpose. If you are not taking ownership, if all you 
are doing is bringing a bank and an insurance company together, why 
should you have to put up capital based on the transaction?
  Then you have the toughest of the issues, and I admit this is a hard 
one. If you look at it one way, it seems like how can anybody be 
against it. If you look at it another way, it makes little sense. This 
is the point.
  What we have agreed to in this amendment, sitting down--and again I 
thank the Senator from California for being willing to sit down and try 
to work it out--what we have agreed to is extensive recordkeeping, 
under the Commodity Exchange Act. Any of these platforms that bring 
together buyers and sellers of these instruments would have to keep 
records for 5 years--which is the same thing that any futures dealer 
has to do. They would have to keep them at a level where the individual 
transaction could be reconstructed. They would have to make it 
available to the CFTC when the CFTC is looking at a potential for fraud 
and a potential for price manipulation. And they have to provide it in 
whatever form the CFTC wants: price, trading volume, other trading data 
to the extent appropriate, which the Commission determines as being 
appropriate.
  The question is, Should they have to make it public? This is the 
question. When you are talking about the prices that you and I see 
every day when we go to Wal-Mart or when we go to buy a pair of tennis 
shoes, we are used to dealing in the world we deal in as consumers 
where people not only want to make prices public, but they pay money to 
publish them in the newspaper. But Wal-Mart does not make public what 
it pays for the things it buys. Wholesale transactions in America are 
proprietary information.
  So that is part of the reason you have this tremendous opposition 
from the entire financial structure of the country. Everyone has agreed 
to the CFTC having the data in whatever form they want, and the ability 
to intervene. But when you are dealing with wholesale proprietary 
information as to how people are brought together in these 
transactions, where if I am a trading floor, or if I am one of these 
people who is a middle man, bringing buyers and sellers together, and I 
have a way of doing it, I don't want to share my trade secrets with 
somebody else.
  So we are not talking about retail prices. The CFTC has total access 
if there is fraud, price manipulation--they can intervene. But in terms 
of these wholesale transactions requiring that these prices be made 
public, and that these transactions would be made public, it would be 
like requiring a shoe store to make public what it paid Nike for tennis 
shoes.
  That is something we do not do in any industry in America of which I 
am aware. Granted, if you are choosing which side to be on in the 
debating club in high school, you want to be on the side of disclosure 
of wholesale prices. But if you are trying to have efficiency in the 
running of the greatest economy in the history of the world, you want 
retail prices to be public, you want the Government to have access to 
data so, if somebody is engaged in an illegal, fraudulent, or 
manipulative activity, you can intervene, but to make people make 
public wholesale prices is something we do not do because that is 
proprietary information. How people put their business together, what 
kind of deals they make with Nike--that is private information.
  So I urge my colleagues, again: Can we focus this down on electricity 
and natural gas to be sure we do not have these unintended 
consequences?
  Second, can we focus it just on futures?
  Third, can we at least require that capital requirements are not 
based on the transactions that come through your purview but on any 
risk you take or ownership you take? Can you imagine if you had some 
job collecting money and consummating transactions for somebody, and 
you had to put up capital based not on what you invested or the risk 
you have, but of your gross and net volume? No company in America that 
has a huge volume could possibly deal with the problem. When you are 
dealing with a $75 trillion industry, it becomes even more important.
  And, finally, any information that Government needs to prevent 
wrongdoing in wholesale transactions--if there is something we have not 
agreed to that would make people feel more confident, I am willing to 
sit down to try to see if we can work it out. But proprietary 
information on a wholesale level is something that we do not do in 
other places.
  So I urge my colleagues, if we can, there are two ways of working 
this out, it seems to me: One, to do an amendment to send the matter to 
these three agencies for evaluation on an expedited basis. Let them 
report back. Let the committees of jurisdiction hold a hearing so we 
can hear from people who know something about this area, rather than 
simply talking among ourselves. That is one approach.
  Another approach is to go back one more time and see if we can deal 
with these concerns. When the people who have been entrusted by us to 
make these markets work, and work fairly, and work efficiently--such as 
Chairman Greenspan--when they and their staff have raised an issue, it 
seems to me we have an obligation to try to see if we understand it and 
to see if we can fix the concern.
  So my guess is we are probably agreed on 90 percent of the things 
that are in this amendment. But the 10 percent we differ on is very 
important.
  Finally--and I will conclude because I see the leader, with the right 
of prior recognition, in the Chamber--let me say if we could work 
something out, I think we would serve the public's interest. I think 
having a series of votes, where we really do not understand what we are 
doing, is not in the public's interest. You feel uncomfortable as a 
Senator saying that, but these are complicated issues.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Republican leader.
  Mr. LOTT. Mr. President, a further definition of ``derivative'': ``A 
financial instrument whose characteristics and value depend upon the 
characteristics and value of an underlying instrument or asset, 
typically a commodity, bond, equity, or currency. Examples are futures 
and options.''
  I am sure that further clarifies the earlier definition that was 
read.


                Amendment No. 3033 To Amendment No. 2989

  Mr. President, I send a second-degree amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report the amendment.
  The legislative clerk read as follows:

       The Senator from Mississippi [Mr. Lott] proposes an 
     amendment numbered 3033 to amendment No. 2989.

  Mr. LOTT. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       At the appropriate place, add the following:

     SEC.  . FAIR TREATMENT OF PRESIDENTIAL JUDICIAL NOMINEES.

       (a) Findings.--The Senate finds that--
       (1) the Senate Judiciary Committee's pace in acting on 
     judicial nominees thus far in this Congress has caused the 
     number of judges confirmed by the Senate to fall below the 
     number of judges who have retired during the same period, 
     such that the 67 judicial vacancies that existed when 
     Congress adjourned under President Clinton's last term in 
     office in 2000 have now grown to 96 judicial vacancies, which 
     represents an increase from 7.9 percent to 11 percent in the 
     total number of Federal judgeships that are currently vacant;

[[Page 3403]]

       (2) thirty one of the 96 current judicial vacancies are on 
     the United States Courts of Appeals, representing a 17.3 
     percent vacancy rate for such seats;
       (3) seventeen of the 31 vacancies on the Courts of Appeals 
     have been declared ``judicial emergencies'' by the 
     Administrative Office of the U.S. Courts;
       (4) during the first 2 years of President Reagan's first 
     term, 19 of the 20 circuit court nominations that he 
     submitted to the Senate were confirmed; and during the first 
     2 years of President George H. W. Bush's term, 22 of the 23 
     circuit court nominations that he submitted to the Senate 
     were confirmed; and during the first 2 years of President 
     Clinton's first term, 19 to the 22 circuit court nominations 
     that he submitted to the Senate were confirmed; and
       (5) only 7 of President George W. Bush's 29 circuit court 
     nominees have been confirmed to date, representing just 24 
     percent of such nominations submitted to the Senate.
       (b) Sense of the Senate.--It is the Sense of the Senate 
     that, in the interests of the administration of justice, the 
     Senate Judiciary Committee shall hold hearings on the 
     nominees submitted by the President on May 9, 2001, by May 9, 
     2002.

  Mr. LOTT. Mr. President, I have made the point here--and Senator 
Gramm was making the point very strongly--that this first-degree 
amendment clearly needs additional work, additional consideration. The 
committees of jurisdiction should have an opportunity to work on it. I 
had hoped that some accommodation could be worked out. I am still 
hopeful of that. But I do not think we are ready to go forward at this 
time.
  Having said that, I also think it is very important the Senate take a 
position with regard to judicial nominations. This second-degree 
amendment is the resolution that was offered last week. There has been 
no indication of how we would proceed on that. All it would say is the 
first nine circuit judge nominations that were offered last May--May of 
2001--would have a hearing--just a hearing--by May 9, 2002.
  This issue is very important to our country, and it needs to be 
considered in the order in which it was pending before we came back to 
the Feinstein amendment.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Illinois.


                    Amendment No. 2989, As Modified

  Mr. FITZGERALD. Mr. President, I am pleased to rise in support of 
Senator Feinstein's amendment. I want to address and rebut a number of 
things my good friend from Texas said.
  I have as much respect for Senator Gramm as I do for anybody in this 
body. It is going to be a great shame that he is retiring this year 
because I will miss him dearly. I think this is, perhaps, the first 
time in my 3 years in the Senate that I have ever risen in opposition 
to Senator Gramm, but I do disagree with him. I do not think this is a 
complicated issue.
  I think it is a relatively simple issue. I think what it comes down 
to is that 2 years ago, when we passed the Commodity Futures 
Modernization Act, we patterned our bill after the recommendations of 
the Presidential Working Group, which included the Chairman of the 
CFTC, the Chairman of the SEC, and the Chairman of the Federal Reserve 
Board. And they had recommended that we create three categories of 
regulation.
  One was a designated contract market which would be our Board of 
Trade and Mercantile Exchange in Chicago or the NYMEX in New York. 
There would be heavy regulation on those designated contract markets.
  The other recommended level of regulation was the so-called DTEF, the 
derivatives transaction execution facilities. Those would be online 
bilateral trading facilities that could be trading derivatives online. 
They would be regulated but with lighter regulation than the full-blown 
regulation of designated contract markets.
  And, finally, we created an exclusion for financial OTC derivatives. 
The opponents of this amendment have created the false impression that 
somehow the amendment by Senator Feinstein and myself intrudes upon the 
now essentially excluded financial derivatives industry. There is no 
regulation by the CFTC to speak of for all the financial derivatives 
that are out there, mainly between banks. Our amendment would not 
impose any regulation on the banks in that regard or on others who 
engage in purely financial derivative transactions. This has nothing to 
do with that.
  Instead, we are simply closing off an exemption that applied to just 
a handful of online trading companies that happen to be trading energy 
and metals. At the last minute, over in the House, they were exempted, 
not just from one or two levels but from all levels of regulation. And 
this exemption applied to literally just a handful of companies. It was 
a special carveout that is upheld by absolutely no public policy 
rationale.
  The companies that benefited from this exemption included, of course, 
Enron Online. There is a company called ICE, the Intercontinental
Exchange; they benefited from this exemption.
  The reason banks are interested in this issue is not because they are 
worried we are imposing some kind of legal uncertainty on financial 
derivatives but, instead, because a couple of banks have a big 
ownership interest in this totally exempt energy online trading 
facility, ICE.
  And, finally, there is another company called TradeSpark that is 
owned by a couple of energy companies.
  So you have three companies that essentially got a special carveout 
from the whole scheme of regulation that originated with the 
President's Working Group.
  The President's Working Group, in essence, said financial 
derivatives, interest rate swaps, for example, between banks would be 
exempt from regulation by the CFTC.
  I take issue with Senator Gramm when he says no Member of the Senate 
knows what a derivative is. I do. I grew up in a banking family. I was 
on the board of many banks. I was a general counsel of a publicly 
traded bank holding company. We used to enter into interest rate swaps. 
When our banks wanted to do a lot of fixed rate mortgages, we wanted 
interest rate protection. We would go protect ourselves against an 
increase in interest rates by entering a swap with another bank.
  There should be no fear, whatsoever, out there that that market would 
be disturbed by our amendment because it has absolutely nothing to do 
with it. We would not impose any requirements on banks entering into 
interest rate swaps, for example. Instead, the intent of our amendment 
is to close off an exemption, a special carveout for online energy 
trading companies that makes no sense.
  The President's Working Group distinguished between financial 
commodities of an infinite supply, such as interest rate swaps, and 
said those should be excluded. And they are excluded. We maintain that 
exclusion.
  But they said: Finite commodities such as agricultural commodities--
corn, soybeans, pork bellies--or metals--gold, silver--finite physical 
commodities such as that in which there is a finite supply and in 
which, theoretically at least, the market could be cornered, there 
should be some regulation for those markets.
  The President's working group further said that there should be full-
bore regulation if the trading is in an open outcry pit such as we have 
at the Board of Trade and the Mercantile Exchange in Chicago. There is 
full-blown regulation. But there is a lighter degree of regulation, 
some regulatory oversight, for online exchanges that trade those 
physical, finite-quantity commodities.
  It is that level of regulation that we are seeking to impose on these 
now exempt online energy transaction facilities.
  Senator Gramm cited section 4(g) of the Commodities Act. He said we 
already have recordkeeping requirements in the CFMA; we already have 
the ability for the CFTC to go after fraud if they find it.
  I looked at section 4(g). Guess what. Section 4(g) does say that the 
Commission shall adopt rules requiring that a contemporaneous written 
record be made, as practical, of all orders for execution on the floor 
or subjected to the rules of each contract market--a contract market is 
a board of trade like the Chicago Board of Trade--or a derivatives 
transaction execution facility. Those are the online transaction

[[Page 3404]]

facilities we are talking about that are regulated.
  The fact is, earlier in this act we created a special category for 
these online energy and metal firms such as ICE which is in turn owned 
by Morgan Stanley and Goldman Sachs. They have a rifleshot exemption in 
this code, and this section 4(g) that Senator Gramm talked about does 
not apply to them because they are exempt from the definition of 
derivatives transaction execution facility. That is back earlier in the 
act.
  What we need to do is close this loophole. What public policy 
rationale upholds the picking out of a couple of online firms and 
saying: You are going to be exempt from the requirements of the act? It 
doesn't make any sense.
  Now, we did have good-faith negotiations with Senator Gramm. He has 
proposed regulating natural gas and electricity contracts that are 
traded online but exempting metals and oil contracts. Why does that 
make any sense? Shouldn't everybody be playing on a level regulatory 
playing field? Why should some business have a regulatory advantage? 
That isn't what America is all about. We want all businesses to be 
playing on the same level playing field. If some succeed because they 
work harder, have better products, and they are smarter, that is great. 
But when they succeed or make a lot of money because the Government has 
sponsored some special advantage based on their power and their 
adeptness at playing the political game in Washington, that is not 
right. That is not what America is all about, giving a special carve-
out to a few companies. It doesn't make sense.
  Now, I happen to agree with Senator Gramm on one point. I have seen 
no evidence that the trading by online energy trading firms had 
anything to do with the spike in oil or electricity prices on the west 
coast. I certainly doubt that is the case.
  But that is not why I am here supporting this amendment. Instead, I 
am supporting this amendment because I think price discovery is very 
important to consumers.
  Senator Gramm was saying we never require retailers to disclose the 
wholesale prices they pay. That is true. But this is not really 
analogous to going to buy something at Wal-Mart. This is more analogous 
to buying a stock from a broker. You call up your broker, and you ask 
them to buy 100 shares of IBM stock. They can look up on the New York 
Stock Exchange and get one of the latest quotes, and they can tell you. 
Let's just say it is $100 a share. You go buy the 100 shares for $100 a 
share, and then your broker gets a commission.
  The problem with this kind of trading is that the customer can't see 
the prices. In the case of your going to your broker and buying 100 
shares of IBM, you can find out what the price was on the New York 
Stock Exchange. It is different with an online energy trading firm. You 
may call them up and say you want a contract for, let's say, natural 
gas or something, and you will pay $265 for the contract.
  Well, what if the person from the online energy company looks up and 
he finds he can buy it at $263? But then he resells it to you at $265. 
You never would know the difference, would you, because you would never 
know the wholesale price at which he got it.
  I am sure no one at Enron Online would ever cheat their customer in 
the way I just described. I am sure that would never happen, or that 
this would ever happen in ICE or TradeSpark--that they would use their 
superior knowledge of the wholesale market and the lack of knowledge of 
their customer to make a few extra points. I am sure that would never 
happen.
  But let's just say that this could happen, that there could be some 
dishonest people in those companies. And in addition to wanting to make 
a commission for selling that contract at $265, they might want to take 
a little bit of markup, a little bit of kickback. It probably happens 
in the political business when we all buy our direct mail. You are 
always wondering how much your direct mail firm is actually paying for 
their printing and mailing. You know they are marking it up, and you 
try to guard against it.
  But that very same thing could happen when you are trading with one 
of these online customers. That is why I do believe it is important for 
the CFTC to have the ability to require these companies to report their 
volumes and to report their prices. That is protection for the 
consumer.
  Oddly, I think ICE, Enron Online, and TradeSpark would have more 
customers if they were regulated by the CFTC than they now have. I will 
tell you this: I would never go trade with them because I would have no 
idea at what wholesale prices they were buying. I wouldn't use them. I 
would go to a regulated board of trade where I could be sure there were 
some safeguards for me. I wouldn't trade with somebody such as that, an 
online energy company. And I believe their businesses are smaller than 
they otherwise would be if there were some protections for consumers.
  It is much like our stock markets. Our capital markets have exploded 
in the last 50 or 60 years. We have the best capital formation markets 
in the world. I do believe that our securities laws have helped foster 
that strong capital market. If you go back to the 1920s and before, 
when there was really no regulation, or go back before the Federal 
Trade Commission, when there was absolutely no regulation of our stock 
markets, the little guys didn't get involved in that at all because 
they figured it was an insider game and that the deck was stacked 
against them. They were right; the deck was stacked against them.
  Since we have put in protections for the consumer, we have banned 
insider trading and made a lot of manipulative practices illegal, more 
and more Americans have felt comfortable investing in the stock market 
to the point that we now have over 50 percent of Americans investing 
their own stocks directly or indirectly. If there were this light level 
of regulation that Senator Feinstein and I are suggesting with our 
amendment, that would be good for these companies that want to uphold 
this special privilege that exempts them from all regulatory oversight.
  Now, I also note that there is a Senator who probably knows as much 
as any of the derivatives experts in this country about derivative 
transactions, and that is Senator Jon Corzine of New Jersey. Senator 
Corzine was chairman of Goldman Sachs, which is an owner of 
IntercontinentalExchange. He has joined us as a cosponsor of this 
amendment.
  I think this is an outstanding amendment. I think it is very simple. 
We are closing off a special deal that just applies to a few firms. 
There is no public policy rationale that supports the special deal 
these firms have. We are making the treatment of all firms the same 
under the Commodity Futures Modernization Act. It makes perfect sense. 
We are doing so in a way that was originally recommended by the 
President's Working Group.
  I appreciate the hard work of my colleague from California and also 
my colleague from Texas. We have had a lot of negotiations. I think one 
thing we have done is conclusively demolish any argument that this 
represents any threat at all to financial derivatives. They are not 
affected in any way.
  Senator Gramm initially said this was his primary concern. We worked 
on it, and we have modified the amendment to make it crystal clear that 
we have no intent of affecting the financial derivatives markets. Those 
are excluded and will continue to be excluded. We are simply trying to 
close off a special loophole that applies to a handful of companies. I 
think it is very good public policy. Let's close this exemption that 
was stuck in by the House at the last minute when they passed the CFMA.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Washington is recognized.
  Mr. GRAMM. Mr. President, might I ask if the Senator will give me 
about 3 minutes to respond to these points before they get cold in 
everybody's mind? Would that work for her?
  Ms. CANTWELL. How long?
  Mr. GRAMM. I think I can do it in 3 minutes.
  Ms. CANTWELL. I will wait.

[[Page 3405]]


  Mr. GRAMM. Mr. President, first of all, I thank the distinguished 
Senator for giving me 3 minutes. She did not have to do that.
  Let me be brief. First of all, if you go back and read the Commodity 
Exchange Act, as amended, you will find that what I said, in fact, was 
correct. There are exempt commodities, which have always been exempt, 
have never been regulated, but they are exempt, except as provided in 
these paragraphs.
  Then we go through a reference to anti-fraud, anti-price 
manipulation, and recordkeeping. So they are exempt from the normal 
process because these are huge wholesale markets among sophisticated 
dealers that have never come under regulation. But they are not exempt 
from anti-fraud, anti-price manipulation, and from recordkeeping. I 
wanted to be sure that we all knew that was true.
  The Senator says the working group favored his amendment. There is 
only one problem with that. Every member of the working group has 
written a letter opposing the amendment. The Chairman of the Federal 
Reserve Board, the Secretary of the Treasury, the Chairman of the 
Commodity Futures Trading Commission, and the Securities and Exchange 
Commission Chairman are the members of the working group. The Senator 
takes a sentence from their report that he says bolsters his argument. 
But every member of the working group who wrote the report, and who is 
charged with it today, opposes the amendment. I have seen no evidence 
that anybody who held these positions during the Clinton administration 
supports the amendment either.
  Special carve-out? There is no special carve-out. We are getting back 
to a myth. Let me remind my colleagues that, as I look at the 2000 bill 
as it was passed, Senator Fitzgerald was an original cosponsor of the 
bill. What this legislation did was simply clarify to a legal certainty 
something the President, the Secretary of the Treasury, and the Federal 
Reserve Board wanted to do, and that was that these sophisticated 
wholesale products that had never been regulated by anybody in the 
history of this country--and since we invented them, and nowhere else 
were they started, that I am aware of--that they were exempt from 
normal regulation, but they were subject to anti-fraud, anti-price 
manipulation, and recordkeeping.
  In terms of buying a stock, that is where all this confusion comes 
from. The example is a good one, but it has nothing to do with the 
point. We are not talking about the same product. Every swap is not a 
future, it is a specific, custom contract. They are not homogeneous. If 
they are, then they are not exempt. These are individually negotiated 
contracts. They are not bought by individual, retail investors, such as 
our colleague from Illinois. They are bought by banks and mining 
companies and those businesses trying to protect themselves against 
risk.
  I thank the Senator from Washington for yielding me this time.
  The PRESIDING OFFICER. The Senator from Washington is recognized.
  Ms. CANTWELL. Mr. President, I rise to urge my colleagues to approve 
this amendment that we have been debating, which would subject energy 
derivatives trading to the same degree of regulatory scrutiny as many 
other commodities. Senator Feinstein and others have worked hard to 
bring about a fair resolution to this issue, and to the chaos brought 
upon many Western States in the electricity crisis as it unfolded.
  What I think is important to understand is exactly what this 
amendment does. First and foremost, my colleagues must recognize that 
this legislation is designed to close a specific loophole--the Enron 
loophole--that allowed Enron and other online traders to sell energy 
futures behind closed doors, without any form of safeguards for 
consumers or investors whatsoever.
  At its core, our amendment would allow the Commodity Futures Trading 
Commission to treat energy futures similar to other regulated commodity 
futures. It does not give the CFTC any new powers that it does not 
already have over many other futures markets. This legislation deals 
specifically with energy futures, without tampering with regulation of 
financial derivatives as much of the floor debate would lead you to 
believe.
  Some have claimed that by subjecting energy derivatives to the same 
level of regulatory scrutiny as other commodities, we would be imposing 
some sort of unacceptable level of ``uncertainty'' on these markets. I 
find that argument fundamentally flawed. How, then, does one explain 
the prominence and global importance of other American markets, such as 
NYMEX, already under the CFTC jurisdiction? They don't seem to be 
struggling because of oversight and scrutiny by the CFTC.
  In fact, I believe that by subjecting trading platforms, such as 
Enron Online, to the same transparency and antifraud rules as other 
types of exchanges, we will actually be increasing the confidence of 
market participants. They can know with certainty that prices for 
energy derivatives are not the result of manipulation. And believe me, 
in my State, consumers have a lot of doubt about why they are paying a 
50-percent rate increase in energy prices. Under this amendment, 
consumers can rest assured that they will not become the casualties of 
gaming in these markets. That is very important.
  To quote the New York Mercantile Exchange, the world's largest trader 
of energy futures:

       With numerous reports of reduced confidence in market 
     integrity in the wake of the Enron bankruptcy, never has it 
     been more important to restore faith in that great American 
     resource, our competitive markets.

  Some have suggested that there has not yet been conclusive evidence 
that Enron manipulated derivative markets and, they argue, that alone 
is reason enough not to proceed.
  Mr. President, there never will be conclusive evidence of such market 
manipulation, if Enron Online and businesses like it are allowed to 
continue operating in secret. I ask the opponents of this amendment to 
think about the ramifications of this situation on the ongoing 
investigation into price manipulation in my home state. As I said, in 
my State, consumers have seen rates increase up to 50 percent in long-
term contracts that they are going to have to live with for many years. 
In fact, Enron is still buying power at cheap prices, marking it up, 
and selling it to utilities at higher prices because of these long-term 
contracts. Yet, FERC's investigation into these price hikes has been 
severely hampered by the lack of information surrounding swaps 
transactions done in secret.
  The task of investigating Enron's collapse and Enron Online's impact 
on energy markets has been made infinitely more complex by virtue of 
the fact that no one was required to maintain books or records that 
would have shown this clear pattern of irregular trading. Instead, we 
are saddled with this post hoc investigation that may well last years.
  Some colleagues talked a lot about the President's Working Group 
recommendations, and some have suggested we delay this legislation. 
What is interesting is that many of the names thrown about this 
morning, Alan Greenspan, then-Secretary of Treasury Larry Summers, SEC 
Chairman Arthur Levitt, and CFTC Chairman Bill Ranier, were signatories 
to the President's Working Group report given to Congress before 
passage of the Commodity Futures Modification Act of 2000. While it is 
true that the report supported exemptions for over-the-counter 
derivatives, the report included significant cautionary notes.
  The President's Working Group basically issued a warning saying: 
commodities with finite supplies are more easily subject to price 
manipulation.
  Obviously, those of us from the West know how finite the energy 
supplies can be, as California, Washington, and other States 
experienced the unbelievable skyrocketing of prices.
  What we, the cosponsors of this amendment, are talking about here is 
how to implement the Working Group's recommendations on antifraud 
provisions. We are saying transaction information should be collected 
and kept. Then, if there is a suspicion of fraud,

[[Page 3406]]

investigators will have something tangible to examine.
  The Working Group unanimously recommended that there should be an 
exclusion for bilateral transactions between sophisticated 
counterparties, but it made specific note: Other than transactions that 
involve nonfinancial commodities with finite supplies.
  The Working Group recommended an exclusion from the Commodity 
Exchange Act for derivatives traded on electronic trading systems 
provided systems limit participation to sophisticated counterparties 
trading for their own accounts and are not used to trade contracts that 
involve nonfinancial commodities--again culling out nonfinancial 
commodities with finite supplies.
  The Working Group noted the danger of exempting these transactions, 
including energy derivatives, from regulatory scrutiny, and they did 
this in November of 1999. These are precisely the transactions that our 
amendment would put under the jurisdiction of the CFTC.
  Unfortunately, these cautionary notes were not heeded by Congress and 
were instead translated into a statutory exemption for bilateral energy 
derivatives and electronic exchanges in the context of the Commodity 
Futures Modernization Act of 2000. I can tell you, my State has 
suffered greatly because of this exemption and has not been able to 
find out whether price manipulation has actually occurred.
  I also suggest that my colleagues take note of the Working Group's 
recommendation that the regulatory regime should be reevaluated from 
time to time. In the aftermath of Enron's collapse, a reevaluation is 
certainly warranted.
  Again, to quote from the President's Working Group:

       Although this report recommends the enactment of 
     legislation to clearly exclude most over-the-counter 
     financial derivatives transactions from the Commodities 
     Exchange Act, this does not mean that transactions may not, 
     in some instances, be subject to a different regulatory 
     regime or that a need for regulation of currently unregulated 
     activities may not arise in the future.

  Specifically, the Working Group recommends the enactment of a limited 
regulatory regime aimed at enhancing market transparency and efficiency 
may become necessary. That is what we are doing.
  We are saying that these things may have come about because of the 
Enron collapse. We have seen, while Congress may have acted in 2000 
thinking this exemption was the right thing to do, this exemption cost 
consumers--if not the high rates they are paying directly--it has at 
least cost them confidence in the system.
  We must restore that confidence by opening up the energy derivatives 
market to transparency and oversight. I urge my colleagues to support 
this very important amendment and to tell the American public that 
Congress is acting to protect them from the kinds of loopholes that 
Enron was able to walk through and cost consumers higher energy prices 
in this country.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. FEINSTEIN. Mr. President, I thank the Senator from Washington. I 
do not know anyone who has been more concerned about what has been 
happening with electricity markets than Senator Cantwell. She has 
really tried to help her constituents and the consumers in this area. I 
am very pleased she has been in the leadership of this amendment.
  I particularly thank the Senator from Illinois, Mr. Fitzgerald, for 
straightening out the record from the perspective of somebody 
intimately involved in the banking industry.
  Let me tell you how all of this boils down for me. It is this: Should 
some parts of this trading community essentially be exempt from any 
form of transparency, from recordkeeping or from oversight? That is the 
bottom line. We are not trying to do anything that is horrendous. All 
we are saying is they should have oversight, they should keep records, 
and there should be information for the public that the Commodity 
Futures Trading Commission would find to be nonproprietary. This is, in 
essence, all we are trying to do.
  I have a hard time understanding how one has to have a large degree 
of sophistication in the industry to want to shed the light of day on 
some of these trades.
  Maybe California was impacted by these trades and maybe California 
was not impacted by these trades, but I can tell you this: The price of 
electricity in California in 1999 was $7 billion. The price the next 
year was $27 billion. It went up fourfold. Something happened other 
than the fact there was a huge demand and no supply. There was trading.
  We saw it with natural gas coming in to California. Natural gas 
prompts the price of electricity, and when it is $59 a decatherm in 
southern California and $8 a decatherm in New Mexico, when the cost of 
transportation from New Mexico to that place in California is only $1, 
one has to look at what has happened to boost that price way up.
  So all we are saying is to put it back the way it was before. Give 
the CFTC jurisdiction.
  It is being made light of that the CFTC does not support this action. 
The CFTC has three members. One of the members supports what we are 
trying to do, and his name is Thomas Erickson.
  I will quickly read what he says.

       This amendment would bring transparency to markets and 
     provide Congress and the public with the assurance that no 
     exchange offering energy commodity derivatives transactions 
     would go completely unregulated. Moreover, it would restore 
     to the Federal Government those basic tools necessary to 
     detect and defer fraud and manipulation. Therefore, I 
     strongly support the amendment.

  That is one member of the regulatory body out of three members to 
whom we are trying to give this responsibility. So there is nothing 
nefarious about the amendment.
  As I pointed out, all members of the FERC support the amendment, as 
well as the Chairman of the FERC, whose letter I read into the Record. 
They know something about these matters. They know what derivatives 
are. They know the transparency and recordkeeping and oversight.
  Whether there was a carve-out for two or three companies or not, I am 
not going to comment because I do not know. I do know there is this one 
narrow exemption whereby all of these online trades go on not in the 
light of day but in the dark of night, so to speak. Nobody knows what 
they are. There are no records kept of them. Therefore, whether the 
CFTC thinks it has some jurisdiction or not does not really make a 
difference because they cannot go back and look at records of trades, 
compare them wholesale versus retail prices, and know whether there was 
any price manipulation or not. So sure, investigate. If there are no 
records, there is no evidence. Therefore, there is not much that is 
going to come from the investigation.
  So all we are trying to say is because this has become a huge, 
burgeoning online business, subject it to all of the same regulations 
and oversight that every other part of the trading community has. It 
does not take a Philadelphia lawyer to understand that. I do think it 
benefits consumers, I do think it benefits responsible trading, and I 
do think it benefits a level playing field for everyone who is trading 
in these markets. I think it provides that level of consumer 
protection. Some people, say, oh, there is a reason why the NYMEX and 
the Chicago Board of Trade want it. They want to force everybody on 
their exchanges. No, not true. If it is easier to trade online, you can 
trade online, no problem with it, but there should be a record kept of 
the trades. There should be transparency, and information that the CFTC 
deems is not proprietary but should be in the public domain can, in 
fact, be in the public domain, and that, finally, there is some 
regulatory body that when there is an allegation of fraud would step 
in.
  For example, I would like the CFTC to take a look at the California 
situation, evaluate the record and tell us, was there price 
manipulation? Was online trading of natural gas manipulated to 
artificially raise prices? They might try to do it now, but they would 
have

[[Page 3407]]

no records on which to base any investigation. Therefore, that is what 
this amendment is all about.
  Sure, I know there are people who do not like it. There are people 
who have tried to obfuscate about it, but is the consumer going to be 
better off because the light of day is shed on these trades in a market 
that is billions and billions of dollars? I think so. I cannot 
understand how anybody feels disadvantaged because there is 
transparency, there is oversight, or there is recordkeeping that is 
required in every single level of trading on any market that exists in 
America today.
  So if anyone takes the time to read these letters, I think they will 
find we are doing nothing nefarious. We are simply trying to bring the 
light of day to provide a record and to provide some regulatory 
oversight to a huge, burgeoning market.
  When I talked to Mr. Greenspan, and I did on two occasions, what he 
was concerned with was financial certainty. What I would say to him is 
this brings financial certainty. This lets everybody who trades online 
know there is some regulation. Just as you have regulation with FERC, 
if you deliver natural gas directly to an entity, if you are trading 
gas in between the delivery, there also is certainty--a certainty that 
one must keep a record, a certainty that the record can become public, 
and a certainty that there is some Federal oversight as there is 
everywhere else.
  I see no reason at all why there should be this widespread exemption, 
particularly at a time when we have seen these prices escalate beyond 
anyone's expectation. Nobody could think that someone could be selling 
electricity at $30 a megawatt and overnight have that price go to $300 
and then $3,000 without the opportunity for the light of day to be shed 
on it, and also have some records and some oversight.
  It is a very simple thing we are doing. It existed before the year 
2000. All we are saying is give the CFTC this oversight. It is 
supported by FERC. It is supported by the New York Mercantile Exchange. 
It is supported by the Chicago Exchange. It is supported by people who 
deal in electricity and natural gas, the municipal systems. It may not 
be supported by the banks that want to run an exchange in this secret 
way. It may not be supported by some who would like to see this 
anonymity continue. But if my colleagues believe that light of day is 
important, then please vote for this amendment.
  I yield the floor.
  The PRESIDING OFFICER (Mrs. Carnahan). The Senator from Idaho.
  Mr. CRAPO. Madam President, I appreciate the opportunity to rise in 
opposition to this amendment. We have heard a lot of debate today about 
a very complicated topic that has been discussed, that understanding 
derivatives is very difficult to do. Since this debate started and I 
began working on this issue, even in years previous as we tried to 
address the issue, I still have to go back again and again to the 
experts who help us to understand the issue.
  The first point I want to make is: We spent the better part of a 
year, a couple of years ago, working on this entire issue of how 
transactions called derivatives are regulated as they deal with 
commodities. We had a Presidential Working Group with which then-
President Clinton worked, and we relied on the advice of that working 
group in setting up the model we put forward to help us address how we 
in the United States should regulate and manage transactions in 
commodities known as derivatives.
  I am going to try in a few minutes to give a little bit of structure 
to how we did that, but the first point is we spent a tremendous amount 
of time with congressional committees working on it over a long period 
of time, and with a Presidential panel working on it, and an advisory 
group, and we came together with an approach that we then brought forth 
as legislation which became law and which President Clinton signed into 
law, and which we have now been working under for a few short years.
  This amendment will change that approach. Before I get into what we 
are talking about and try to put a little order to what the whole 
debate is about in terms of the structure of the law, let me state the 
conclusion that Alan Greenspan gave in answer to me in a Banking 
Committee hearing a few weeks ago when I said to the Chairman: Chairman 
Greenspan, is this amendment going to be good for America?
  His answer to me--and I will read his words in a few minutes if I 
need to, but his answer, in essence, was he believed the way we had set 
it up was working, that it provided a resiliency to our markets in the 
United States and that resiliency was, in his opinion, probably one of 
the big factors in our ability to have the strength in our economy to 
rebound as fast as we did when the recessionary trends hit us.
  In other words, the recessionary trends we are hopefully now starting 
to see ourselves grow out of were lessened, and the time we had to 
spend in that financial trough was reduced because we had the 
resiliency in our derivatives transactions that we put into place as a 
result of this very thorough study we went through just a few years 
ago.
  This amendment seeks to change that. The arguments are in that act we 
passed a few years ago. There was a rifleshot created, a specific 
exemption for a few commodities that was not fair, and all commodities 
should be treated equally. The reality is the reverse. We created basic 
categories in the law we passed. This amendment is a rifleshot 
amendment to pick out just a couple commodity groups and say these 
commodity groups should have been treated differently.
  How did the law we passed last time work? The question, again, is how 
are we going to regulate derivatives and commodities that are going to 
be marketed through derivatives transactions. First, there was an 
entire category we said we were going to exclude, we would not 
regulate. Those are called financial derivatives. This includes 
Treasury bonds, foreign exchange, interest rates, things that happen in 
the financial industry.
  The Senator from Illinois discussed how banks and others deal in 
these transactions. They are totally excluded.
  Another category of commodities included, because historically they 
have been included and traded on exchanges and derivatives 
transactions, was the agricultural commodities. They were included with 
full regulation, full coverage. They are now traded on these boards.
  All other commodities were exempted. I use the word ``exempt'' as 
opposed to ``exclude'' because it is different than how we treat 
financial transactions. Financial derivatives were excluded; no 
regulation. Agricultural commodities were included; complete 
regulation. All other commodities were exempted, meaning they were not 
going to be regulated and forced on to the exchanges and forced to be 
traded in the ways that the agricultural commodities were, but they 
were still subject to very important regulatory controls. The Senator 
from Texas has already gone over those. Those were protections against 
fraud. They would be subject to the antifraud protections, the anti-
price manipulation protections, and the recordkeeping protections. All 
other commodities, other than agricultural and financial transactions, 
are still subject to those types of fraud, price manipulation, and 
recordkeeping requirements under the act.
  What has happened with this amendment? From that category called 
``all other commodities,'' the amendment seeks to pick out just two 
commodity groups: Energy and minerals. That is the rifleshot, saying we 
do not like the categorization we did a few years ago; we need to take 
energy and minerals and move them to another category. The arguments 
given in favor of it are because we need more recordkeeping control and 
protection. That is included under the act.
  The other argument is that we should not treat one group different 
from any other group. Frankly, as I indicated, we already have 
exemptions and exclusions and coverage in different categories. I ask 
this question: If the argument is that regulation is good and

[[Page 3408]]

therefore we should not have any commodity derivatives transaction that 
is not regulated, why not, instead of having a rifleshot amendment that 
regulates only energy and mineral transactions, bring all the financial 
transactions in as well?
  If people are at risk in America today because we are not regulating 
derivatives transactions, why shouldn't we have regulated derivatives 
transactions and Treasury bonds? People's retirement depends on their 
investment in Treasury bonds. Financial transactions, like foreign 
exchange and interest rates, are every bit as important to the investor 
in America as are energy or mineral transactions--and, in fact, 
probably more so if you look at the financial transactions and all of 
the other types of commodities not included when we did the act before.
  If we do that, we take the resiliency out of the markets and make it 
harder for this Nation's financial system to work effectively. If you 
accept the argument that everybody should be under the same rules and 
nobody should be rifleshot out, we should cover everybody and have no 
exclusion for financial transactions and no exclusion for any 
commodities. Instead, that is not what the working group recommended.
  I make another point. It has been argued somewhat subtly, but I think 
the point has been clearly argued, investors are at risk because they 
do not have information about these derivatives transactions. These 
transactions are not investor transactions. This is not a situation 
where an investor is looking at a transaction and saying: I think I 
will invest in that derivative or I will see if I can buy into this 
derivative transaction.
  What is going on is the transfer of risk from those who hold a higher 
risk situation but do not want to maintain that risk or are not in a 
financial position to maintain that risk to someone in a better 
position to maintain risk. We talk about what derivatives transactions 
do. They transfer risk from one who cannot manage it as well to one who 
can manage it better. It helps our economy be resilient.
  These are transactions between extremely sophisticated managers--
whether they be people who are transacting in energy commodities or in 
minerals commodities. There is not a situation where an investor is 
being shown a document and being asked to invest in a particular 
instrument. This is not like a stock market sale or transaction. This 
is a negotiated contract between sophisticated buyers and sellers who 
are working in the marketplace to try to reduce risk, which brings 
strength and stability to the economy and, as Greenspan said, helped in 
this last recession to bring us back more rapidly.
  What we are being asked to do is to shackle it and make it so that 
these transactions cannot occur except over the board. These 
transactions have to be regulated like the agricultural transactions.
  There has been a lot of talk about who supports and who opposes this 
amendment. There is already in the Record a letter from our Secretary 
of the Department of Treasury and from the Chairman of the Board of 
Governors of the Federal Reserve System, Paul H. O'Neill and Alan 
Greenspan, who strongly say we should maintain the current system. I 
read from the very last part of their letter:

       [Such legislation] could jeopardize the contribution that 
     off exchange derivatives have made to the dispersion of risk 
     in the economy. These instruments may well have contributed 
     significantly to the economy's impressive resilience to 
     financial and economic shocks and imbalances.

  So you have the Secretary of the Treasury and the Chairman of the 
Federal Reserve saying: Do not shackle our economy this way.
  We also have the Commodity Futures Trading Commission itself, the 
Chairman, representing the majority point of view, stating that there 
is no shown reason for us to change the structure we achieved after 
such careful debate previously.
  We also have the Securities and Exchange Commission saying there is 
no need for this change and we should walk carefully.
  We are talking about the Government regulators--the Department of 
Treasury, the Federal Reserve, the SEC, the CFTC--saying there is no 
need for this.
  What is the private sector saying? Those opposed to this amendment 
are those who deal in these transactions: The International Swaps and 
Derivatives Association, the American Bankers Association, the ABA 
Securities Association, the Bond Market Association, the Financial 
Services Roundtable, the Futures Industry Association, the Securities 
Industry Association, and the U.S. Chamber of Commerce, the point being 
that those in our economy who deal with derivatives are saying to us: 
We don't want to have a rifleshot amendment that takes energy and 
mining transactions and moves them over.
  Again, I want to go back and summarize a little bit. We have a 
situation here in which we had a Presidential working group that said 
we should set it up the way we did. We set it up the way we did. It 
worked. Those who deal with our financial markets in America have said 
it brings us and brought us the resilience we needed this last time 
when our economy had the shocks and turmoil we have faced in the last 
few years. It has been working.
  There was also testimony in the hearings we held before the Banking 
Committee and elsewhere, where those who have tried to tie the failure 
to regulate derivatives transactions to some kind of problem in the 
energy markets in California, or to the Enron collapse, have been able 
to show no real evidence of that. If there were evidence of that, then 
I think that is something that would be a valid debate for us to have 
in the Senate.
  Instead, I have sat here now for hours this morning, listening to the 
debate, and it has come down to basically two points, as I understand 
the reasons that have been put forth for this amendment.
  They are that we need to have more information available for 
investors and those in the industry who might want to look at these 
transactions to see if there was fraud or whatever. And the response to 
that argument again is that they are already subject to the Act's anti-
fraud provisions, their anti-price discrimination provisions, and their 
recordkeeping provisions, and that these are not investor transactions.
  Then there are those who say it is just a good thing for us to have 
everybody under the same rules and nobody should get any exemptions. If 
that is the case, we should amend the amendment to bring in all 
commodities, including those that are excluded, such as the financial 
transactions, and those that are exempted, such as the commodities that 
are not agricultural.
  Again, I am not recommending that. I am simply saying the argument 
that everybody should be under the same rules does not carry with 
regard to these kinds of transactions. If it did, then the amendment 
should be much broader than it is.
  The bottom line here is this: If there is some basis for us to 
consider changing the law, which we worked so hard to put together a 
few years ago, then that process of determining the change that needs 
to be made and evaluating the facts and the arguments behind why such a 
change should be made should first go through the regular process of 
legislating here in this Congress; namely, the committees with 
jurisdiction should take jurisdiction over these issues and establish 
the analysis. We should hold hearings.
  If there is an argument that somehow the Enron situation is connected 
to how we regulate derivatives transactions, then we should hold 
hearings. Those hearings should probably be in the Agriculture 
Committee, which is where the jurisdiction of this amendment lies. But 
somewhere we should have hearings to find out whether such a connection 
is real and, if so, what the connection is and why it occurred. That 
will guide us, then, in terms of figuring out how we might create a 
better regulatory mechanism.
  The same is true if there are those who contend that somehow the 
California energy collapse and the circumstances that occurred there 
were

[[Page 3409]]

caused by failure to properly regulate energy derivatives. Again, no 
connection has been made in the minds of those who work in the 
marketplace. But if there is an argument that such a connection is 
there and that it justifies a change in the law, then shouldn't we have 
a study of it? Shouldn't we evaluate it? Shouldn't we have a hearing--
at least one? Shouldn't we let the committees of jurisdiction dig into 
this and go through the process we did before? Maybe we need another 
Presidential advisory board.
  If the results of the last system are not adequate, we could add to 
them and supplement them. But we should study the issue and try to find 
out what facts justify such an argument and, if there is any validity 
to it, what caused it, so we can then understand how to regulate it 
better.
  The bottom line is that we have had none of this. We have had no 
hearings. We have had no committee evaluation. We have had nothing, 
other than a several-hour debate in this Chamber. We had a couple hours 
of debate a week or so ago and now a couple of hours more today. But we 
have not had the opportunity to get to the bottom of all of these 
arguments, whether they be factual allegations or arguments about the 
proper mode of regulation.
  I suggest what we need to do is to refer this amendment to the 
appropriate committees of jurisdiction and let them conduct the 
studies, conduct the evaluations. In fact, what might even be a better 
solution is to refer this issue to the appropriate regulators.
  At some point in time I may submit an amendment to do just that, to 
let the CFTC and the other appropriate regulators have a period of 
time--the Senator from Texas suggested maybe a short period such as 45 
days--to dig into this matter and give a report to Congress about what 
they have found out about all the alleged contacts between wrongs in 
our society that might be related to something here dealing with 
derivatives.
  Again, if they find anything in that context, then the appropriate 
committees of jurisdiction can have hearings and review these issues, 
determine if there is any merit whatsoever in proceeding forward with 
changing our regulatory scheme, and then in a very effectively fine-
tuned way figure out how we should change the law.
  To me it seems very clear; if we do not have the kind of threat that 
some suggest we have, and if we do have the potential strength in our 
economy that is provided by having this flexible system of commodities 
transactions regulations, it would be very dangerous for us to move 
into a new regulatory system without understanding where we are 
heading.
  This is one of those circumstances in which it is far too important 
for our economy for us to take a risk of unintended consequences.
  One of the most significant things we will face with regard to this 
amendment, in my opinion, is the list of unintended consequences that 
could occur.
  The Senator from Texas indicated earlier it is really hard to debate 
unintended consequences because we really don't know what they are, 
because they are unintended, uninformed--something of which we are 
unaware. It is something about which, if we held hearings and went 
through the regular legislative process on this issue, we would 
identify. Then whatever consequences flowed from what we were doing 
would be understood and supposedly intended by those who supported it.
  Instead, we are being asked here on very short notice, without the 
kind of debate we need, to regulate in a way that is not necessary one 
section of our economy--the energy and the minerals transactions 
related to derivatives.
  Again, if the argument is going to be made that we need to protect 
investors in America, it is hard to see that because these are not 
investor transactions; they are transactions between highly 
sophisticated individuals. If it is true that derivatives are somehow a 
threat to the investor community and the safety of the investments of 
the American public is at risk because of something wrong with the way 
we manage derivatives, then why don't we cover all commodities? As I 
said earlier, it seems to me the question of how we regulate Treasury 
bonds or foreign exchange or interest rates or other financial 
transactions is every bit as important to the American investor as is 
the question of how we regulate minerals or how we regulate energy 
transactions.
  I know in today's climate, with the Enron collapse and with the 
energy troubles we faced a few years ago in California, there are those 
who want to look at every aspect of financial and other transactions 
relating to energy and see if there is some way we can improve it. But 
I suggest it does not necessarily mean that more regulation and more 
government bureaucracy is the best way to solve these problems, 
particularly when you have the Secretary of the Treasury and the 
Chairman of the Federal Reserve telling us we have to have the kind of 
resiliency in our economy that derivatives provide to us.
  In conclusion, I believe the bottom line is that each side can point 
to those who support their positions and those who oppose them. Each 
side can come up with arguments about why what we are doing now is or 
is not working. But no side can say we have the background information 
necessary to make this decision, because we have not had the kind of 
hearings and congressional evaluation of this issue we should have had.
  Because of that, I stand firmly opposed to the amendment. I believe 
ultimately the American people will be much better served if we do our 
jobs in the Senate the way our procedures are set up to do them. The 
procedures and the policies of the Senate have been established to make 
very clear that we can have the time to evaluate issues such as this 
and do the study necessary to have good, solid support.
  I also believe, as has been indicated by those who debate here, if we 
went through that process I have suggested--having a study and then 
further congressional evaluation and then maybe propose legislation--we 
would probably have much more support for whatever came forth, if 
anything. We would build the collaboration, we would build the 
consensus, and we would come forward, because the one thing that there 
has been agreement on today is that nobody wants to have the problems 
we saw occur in California.
  Nobody wants to see any kind of fraud or abuse from financial 
transactions or derivatives transactions. Everybody is willing to make 
sure that antifraud provisions and price protection provisions and the 
recordkeeping provisions are adequately available for derivatives 
transactions as necessary, so that we do not cause or increase any risk 
of problems in the economy.
  If we will follow the procedures and the processes of the Senate, let 
this matter be handled by the committee of jurisdiction, which I 
believe is probably the Agriculture Committee, and then let other 
related committees handle their parts of it, with studies in support 
from the private sector and from our regulating agencies, I believe we 
can get the information necessary for us to do a good job, build 
consensus, and come forward with a solution that can be broadly 
supported on both sides of the aisle.
  I thank the Chair very much for this time.

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