[Congressional Record (Bound Edition), Volume 149 (2003), Part 11]
[Senate]
[Pages 14460-14469]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  ENERGY POLICY ACT OF 2003--Continued

  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. Madam President, as a manager of the bill, our side is 
awaiting communication from the executive branch by way of explanation 
of the Feinstein amendment. That should be arriving shortly. When it 
arrives, we will be ready on our side for the conclusion of any 
discussion. So it should not be too long--probably after lunch--before 
we are ready on our side for a vote on the Feinstein amendment.
  For those who are wondering, that is what is happening. There is no 
need to be in the Chamber on that amendment until that event occurs. I 
am certain nothing will happen on the Energy bill until that time 
because there is no concurrence that anything can happen. In other 
words, we cannot do anything because the Feinstein amendment cannot be 
set aside for any other amendments.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Madam President, I say to my friend from New Mexico, I am 
very appreciative of the statement he just made because I am going to 
do as he just did during this lull of time: Go get my hair cut.
  Mr. DOMENICI. We hope it will be here shortly. I noted the presence a 
short time ago of the chairman of the Agriculture Committee, which has 
primary jurisdiction on the Feinstein amendment. He, too, was wondering 
what was happening. I want him and

[[Page 14461]]

his staff to know that is exactly what is happening. It should not be 
too much longer until we then proceed in due course for a vote.
  The PRESIDING OFFICER. The Senator from New Jersey.
  Mr. LAUTENBERG. Madam President, I ask unanimous consent to speak as 
in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The remarks of Mr. Lautenberg are printed in today's Record under 
``Morning Business.'')
  The PRESIDING OFFICER. The Senator from Alabama.


                           Amendment No. 876

  Mr. SHELBY. Madam President, I rise today to encourage my colleagues 
to oppose the amendment of the senior Senator from California, Mrs. 
Feinstein.
  First, I address the second-degree amendment the senior Senator from 
Nevada, Senator Reid, is offering. I encourage my colleagues to oppose 
this second-degree amendment, also. The Reid second-degree amendment 
would exempt derivative contracts on precious metals from the new 
regulatory scheme the Feinstein amendment creates. We are told the 
Feinstein amendment is necessary to avoid the manipulation of markets 
for commodities that are in limited supply like oil or metals.
  Underpinning the Feinstein amendment is the belief the Enron debacle 
and the California energy crisis occurred because there was 
insufficient regulation and wrongdoers were able to accomplish massive 
frauds and manipulation. The Feinstein amendment is intended to close 
the alleged regulatory loophole for off-exchange transactions for 
exempt commodities.
  Assume, only for argument's sake, that Senator Feinstein is correct. 
Assume the regulatory regime established only 2\1/2\ years ago is 
insufficient and that we must close a so-called regulatory loophole. If 
you believe this and support the Feinstein amendment, you must 
necessarily oppose the Reid second-degree amendment, which will carve a 
vast number of derivative contracts out of the regulatory scheme the 
Feinstein amendment creates.
  I don't believe we can have it both ways. What is necessary for the 
energy markets is necessary for the metals markets. I encourage my 
colleagues to oppose both the Reid second-degree amendment and the 
Feinstein amendment as unnecessary, redundant, and potentially 
destabilizing to our financial markets. I encourage my colleagues who 
feel compelled to support the Feinstein amendment to not support the 
Reid amendment, which is at direct cross-purposes to the underlying 
amendment.
  Less than 3 years ago, in December 2000, Congress enacted the 
Commodity Futures Modernization Act of 2000, which was landmark 
legislation that provided legal certainty regarding the regulatory 
status of derivatives. Passage of the modernization act was the result 
of many months of analysis of the role that derivatives play in the 
marketplace and the consequences of increased regulation. In fact, 
because the modernization act addressed derivative products pertaining 
to commodities and financial products, both the Agriculture Committee 
and Banking Committee held numerous hearings to help Members and the 
public better understand the role the various derivative financial 
instruments and contracts played in our economy and what regulatory 
landscape, if any, is appropriate.
  Now, only 3 years after enactment of the modernization act, Senator 
Feinstein's amendment proposes fundamental changes to the law. I 
believe this amendment could create many regulatory problems, including 
creating jurisdictional confusion between the Federal Energy Regulatory 
Commission, FERC, and the Commodity Futures Trading Commission, CFTC, 
imposing problematic capital requirements on facilities trading 
derivatives, and impugning the legal certainty of OTC derivatives put 
in place in 2000.
  I am concerned this body does not have full appreciation of these 
consequences and potential unintended consequences that will likely 
follow if we were to adopt the Feinstein amendment.
  I also believe it is premature to adopt this amendment because we 
have simply not had enough time to review the results of the 
modernization act. We have not received any reports from the CFTC 
detailing shortfalls in the regulatory authority conferred by the 
modernization act or recommendations requesting broader authority over 
derivatives. In fact, the CFTC had brought several major cases 
involving market manipulation since the passage of the modernization 
act. Congress should have more than a 2-year record before it decides 
to make rash but fundamental changes to legislation that was the 
product of so much deliberation a short time ago.
  Proponents of the Feinstein amendment argue that the collapse of 
Enron and the disruption of the California energy market are prime 
examples of the need for greater regulation of derivatives. This 
assertion is simply not true. Enron collapsed as a result of deceptive 
accounting practices involving special purpose entities and poor 
corporate governance practices that permitted abusive business 
practices. Congress addressed such abuses in last year's Sarbanes-Oxley 
Act. More importantly, Enron's derivative business was in operation 
prior to enactment of the Modernization Act and was one of the business 
lines that retained value for sale after the collapse when most others 
didn't.
  Further, FERC, the Federal Energy Regulatory Commission, recently 
concluded a year-long review of potential manipulation of electric and 
natural gas prices in the Western markets. Although FERC did find 
market manipulation, it also concluded:

       Significant supply shortfalls and a fatally flawed market 
     design were the root causes of the California market 
     meltdown.

  In short, it was lack of energy supplies and poor State regulations 
that caused the disruption. I fear that the adoption of the Feinstein 
amendment could lead to uninformed and premature changes to the 
carefully considered provisions of the Modernization Act.
  I believe the Feinstein amendment proposes unnecessary regulatory 
measures and significantly undermines the legal certainty achieved in 
the Modernization Act. Therefore, I strongly urge my colleagues to vote 
against the Feinstein amendment.
  The President's Working Group on Financial Markets, which is 
comprised of the Secretary of the Treasury, the Chairman of the Federal 
Reserve Board, the Chairman of the Securities and Exchange Commission, 
and the Chairman of the CFTC, will be sending a letter today expressing 
its concerns with this amendment and urging Congress to carefully 
consider the potential unintended consequences of the amendment before 
acting. I intend to submit this letter for the Record when I receive 
it. I anticipate this letter will raise the same concerns that were 
raised in the working group's letter last year.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. SUNUNU. Madam President, I rise to join my colleague, Senator 
Shelby, my committee chairman on the Banking Committee as well, in 
opposing the Feinstein amendment. This amendment was debated at length 
about a year ago during the previous Senate Energy bill debate. At that 
time, Senator Phil Gramm raised a number of issues, a number of 
concerns with the legislation. He said a great many wise and 
commonsense things. One of the perspectives that he pointed out that 
stuck with me was noting that, in raising concerns about failures, 
companies that had gone bankrupt such as Long Term Capital Management, 
or perhaps closer to home for the Senator from California, the 
bankruptcy of Orange County, CA, that involved to a certain extent 
derivatives and then called for regulation--we were, in effect, blaming 
the instrument itself, blaming the derivative, which is a little bit 
like blaming a thermometer for a warm day. That is not the right 
approach for legislation and I think it will lead us to bad conclusions 
in trying to structure legislation that will strengthen financial 
markets.

[[Page 14462]]

  As the Senator from Alabama indicated, at the root is our concern 
that we not pass legislation that has unintended consequences, not pass 
legislation that is counterproductive, and rather than strengthen the 
markets or increase confidence in markets, actually has the opposite 
effect.
  This legislation would give a great deal of new power to FERC, which 
is a concern to me because that would be power given over to the FERC 
not just to regulate but really to arbitrate, to refer claims to 
different regulatory authorities. On its face, I ask whether FERC has 
the expertise or the knowledge in all of these sophisticated markets to 
make such decisions. It is, perhaps, a power best not given to FERC. 
But it is also a power, in referring and making these decisions as to 
which regulatory body a particular claim or complaint would go, that 
would have the effect of creating uncertainty, uncertainty as to which 
organization had regulatory oversight.
  The Commodity Futures Trading Commission and FERC already coordinate 
their enforcement with respect to the energy markets. The CFTC has 
subpoena power. I think, as a number of other speakers indicated, in 
the year 2000 there was a Commodity Futures Modernization Act that was 
passed that was a good piece of legislation. A lot of work went into 
that. It drew from recommendations made by the President's working 
group. In particular, it strengthened the CFTC's hand in regulation in 
a number of areas.
  I certainly do not think offering an amendment at this time on this 
particular bill is the appropriate way to modify that legislation, the 
Commodity Futures Modernization Act, that was a product of extended 
negotiations. The piece of legislation such as being offered by the 
Senator from California ought to go through the regular committee 
process. We ought to have hearings on it and certainly we ought to have 
an opportunity to debate it in the key area of the Banking Committee 
and Agriculture Committee jurisdictions.
  Of particular interest as well is the fact that this amendment is 
opposed by a number of organizations, a number of the regulators 
themselves who are most concerned with stability and confidence in the 
markets--by the Fed, by the SEC, and by the CFTC. Even though this bill 
gives additional powers to the CFTC, they still oppose it. It is not 
often in Washington you have someone opposing an effort to give them 
more power and more jurisdiction, but these very organizations are 
worried every day about safety and soundness, about regulatory clarity, 
about ensuring a greater degree of stability and solvency in the 
marketplace. Why would they oppose this effort, to give more regulatory 
power to them or to their sister organizations?
  I believe it is in part because of their concern that this might have 
unintended consequences, that this, unfortunately, might add 
uncertainty to the markets, that this might stifle transactions that so 
often act to reduce the risk in the marketplace.
  Particularly telling is the fact that an amendment is being offered 
to strike the coverage of various metals from this provision. 
Obviously, someone recognizes that this might not be good, might not be 
healthy for a particular area of our economy, of the derivatives 
exchanges, and therefore wants to protect them from the uncertainty and 
the instability I have described.
  Unintended consequences, we have to be so careful about exactly in an 
example such as this. These derivative markets are so complicated so 
the potential to have unintended consequences is effectively magnified 
by our collective lack of knowledge. There are some Senators who know 
more than others about these markets. The Senator from California has 
spent more time than others debating and discussing these issues. But 
any time we venture into an area of such complexity we enhance the risk 
that a piece of legislation will have unintended consequences.
  I certainly do not fault the intentions or question the intentions or 
the motives in offering the legislation. We share the goals of ensuring 
that we have good regulatory agencies with appropriate enforcement 
powers, but we also should be careful that we not disturb a market 
which I believe functions extremely efficiently. As complex as it is, 
and as large as it is--I have seen estimates of the size of the global 
derivatives market as high as $75 trillion--as large as that market is, 
it works very effectively.
  These are not products that are sold on any exchanges and there is a 
reason for that. The principal reason is that they are unique. They are 
unique to the organizations that seek them out. The vast majority of 
these organizations seek out a particular swap or derivative 
transaction in order to reduce the risk they are exposed to at any 
given day. That is why these instruments were developed and exist in 
such great numbers in the first place. Companies, institutions, 
financial service companies, banks--they seek out these derivatives to 
reduce their exposure to risk. When they are able to do that, they 
ensure greater stability, they ensure greater certainty for their 
investors, and it has the effect of, obviously, making our markets 
stronger. And helping our economy to grow.
  We have exercised great caution before stepping forward and trying to 
substitute some kind of new regulatory regime when a market is 
functioning this effectively and arguably enforcing its own level of 
discipline in the way that it functions. What kind of discipline is 
that? If I am going to engage in an interest rate swap, or some other 
derivative transaction with a financial institution, rest assured that 
I as an investor or as a counter-party to that transaction am going to 
want to know a great deal about the solvency, the exposure to other 
risks, exposure to interest rate changes, and exposure to different 
portions of our economy with which that institution I am engaging with 
in a transaction is dealing.
  There is a level of inspection and a level of due diligence that 
takes place in this marketplace every single day, which I might argue 
is more detailed and more thorough and more consistent than any 
government regulatory agency could ever provide.
  I believe we should oppose this amendment because it hasn't gone 
through the regular order because it attempts to impose a level of 
regulation that might well be counterproductive, that might increase 
the level of uncertainty in certain areas where jurisdiction is 
concerned, and that springs from a concern that somehow the derivatives 
themselves--the instruments themselves--are to blame rather than 
managers who have made some very bad decisions.
  Derivatives didn't cause the energy crisis in California. Derivatives 
didn't cause the collapse of Enron. Managers making bad decisions did. 
In some cases, managers engaging in fraudulent behavior did. Certainly 
the Commodity Futures Trading Commission has the power to go after 
cases where fraud or price manipulation are concerned. They are 
completely empowered to do just that.
  I encourage my colleagues to vote against the amendment, and I yield 
the floor.
  The PRESIDING OFFICER. The Senator from California is recognized.
  Mrs. FEINSTEIN. Madam President, I would like to use this time to 
respond to some of the comments that have been made.
  It is really a misconception to think this is an amendment against 
derivatives. This isn't an amendment against derivatives. I have never 
said derivatives caused the western energy crisis. What I said was that 
there is a loophole in the law: Where all other finite commodities, 
except for energy and metals, have certain regulations with respect to 
transparency, these particular finite commodities do not; and that 
certain traders use this loophole to practice, if you will, a kind of 
fraud in their trading. The fraud was to artificially find ways to 
boost their products. I wish to respond to that.
  Let's go into one of the ways they proceeded to do this--through what 
is called a round trip or a wash trade. Yesterday on the floor, Senator 
Fitzgerald and I, as well, very clearly pointed out what a wash trade 
is: I sell you a finite commodity, and you sell

[[Page 14463]]

that same commodity back to me. On our balance sheets, we both carry a 
sale. Yet nothing ever changes hands. What we are saying is that this 
should be an illegal practice. What we are saying is that, at the very 
least, it ought to have transparency to it. We ought to be required to 
keep a record, to have an audit trail, and to have anti-fraud and anti-
manipulation oversight of these practices by the Commodity Futures 
Trading Commission.
  What we more fundamentally say is that a great deal of this was done 
in the western energy crisis through electronic trading.
  Madam President, I understand I have the right to modify the 
amendment. Is that not correct?
  The PRESIDING OFFICER. That is correct.


                     Amendment No. 876, As Modified

  Mrs. FEINSTEIN. Madam President, I would like to send a modified 
amendment to the desk. That modified amendment contains an additional 
cosponsor, Senator Kennedy. The modified amendment makes two changes to 
the amendment which I submitted before. The first change is to be 
absolutely crystal clear that this does not affect financial 
derivatives. I said that in my comments yesterday. I say it again 
today. To make it crystal clear, because some are concerned, and say, 
``Oh, well, this will upset the financial derivatives marketplace,'' 
this is not the intent. It would only apply to finite commodities.
  Right upfront, we are clearly saying that this title shall not apply 
to financial derivatives trading.
  The other change to this amendment simply takes Senator Reid's 
amendment to exclude metals and adds this to this bill.
  If I may, I send that amendment, as a modified, to the desk at this 
time.
  The PRESIDING OFFICER. The Senator has that right. The amendment is 
so modified.
  Mrs. FEINSTEIN. I thank the Chair.
  The amendment (No. 876), as modified, is as follows:

       At the end, add the following:

                    TITLE__--ENERGY MARKET OVERSIGHT

     SEC. __01. NO EFFECT ON FINANCIAL DERIVATIVES.

       This title shall not apply to financial derivatives 
     trading.

     SEC. __02. 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.--
       ``(1) Referral.--
       ``(A) In general.--To the extent that the Commission 
     determines that any contract involving energy delivery that 
     comes before the Commission is not under the jurisdiction of 
     the Commission, the Commission shall refer the contract to 
     the appropriate Federal agency.
       ``(B) No effect on authority.--The authority of the 
     Commission or any Federal agency shall not be limited or 
     otherwise affected based on whether the Commission has or has 
     not referred a contract described in subparagraph (A).
       ``(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, the Department of Justice, the Department 
     of the Treasury, 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.''.

     SEC. __02. INVESTIGATIONS BY THE FEDERAL ENERGY REGULATORY 
                   COMMISSION UNDER THE NATURAL GAS ACT AND 
                   FEDERAL POWER ACT.

       (a) Investigations Under the Natural Gas Act.--Section 
     14(c) of the Natural Gas Act (15 U.S.C. 717m(c)) is amended--
       (1) by striking ``(c) For the purpose of'' and inserting 
     the following:
       ``(c) Taking of Evidence.--
       ``(1) In general.--For the purpose of'';
       (2) by striking ``Such attendance'' and inserting the 
     following:
       ``(2) No geographic limitation.--The attendance'';
       (3) by striking ``Witnesses summoned'' and inserting the 
     following:
       ``(3) Expenses.--Any witness summoned''; and
       (4) by adding at the end the following:
       ``(4) Authorities.--The exercise of the authorities of the 
     Commission under this subsection shall not be subject to the 
     consent of the Office of Management and Budget.''.
       (b) Investigations Under the Federal Power Act.--Section 
     307(b) of the Federal Power Act (16 U.S.C. 825f(b)) is 
     amended--
       (1) by striking ``(b) For the purpose of'' and inserting 
     the following:
       ``(b) Taking of Evidence.--
       ``(1) In general.--For the purpose of'';
       (2) by striking ``Such attendance'' and inserting the 
     following:
       ``(2) No geographic limitation.--The attendance'';
       (3) by striking ``Witnesses summoned'' and inserting the 
     following:
       ``(3) Expenses.--Any witness summoned''; and
       (4) by adding at the end the following:
       ``(4) Authorities.--The exercise of the authorities of the 
     Commission under this subsection shall not be subject to the 
     consent of the Office of Management and Budget.''.

     SEC. __04. CONSULTING SERVICES.

       Title IV of the Department of Energy Organization Act (42 
     U.S.C. 7171 et seq.) is amended by adding at the end the 
     following:

     ``SEC. 408. CONSULTING SERVICES.

       ``(a) In General.--The Chairman may contract for the 
     services of consultants to assist the Commission in carrying 
     out any responsibilities of the Commission under this Act, 
     the Federal Power Act (16 U.S.C. 791a et seq.), or the 
     Natural Gas Act (15 U.S.C. 717 et seq.).
       ``(b) Applicable Law.--In contracting for consultant 
     services under subsection (a), if the Chairman determines 
     that the contract is in the public interest, the Chairman, in 
     entering into a contract, shall not be subject to--
       ``(1) section 5, 253, 253a, or 253b of title 41, United 
     States Code; or
       ``(2) any law (including a regulation) relating to 
     conflicts of interest.''.

     SEC. __04. LEGAL CERTAINTY FOR TRANSACTIONS IN EXEMPT 
                   COMMODITIES.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is 
     amended by striking subsections (g) and (h) and inserting the 
     following:
       ``(g) Off-Exchange Transactions in Exempt Commodities.--
       ``(1) Definitions.--In this subsection:
       ``(A) Covered entity.--The term `covered entity' means--
       ``(i) an electronic trading facility; and
       ``(ii) a dealer market.
       ``(B) Dealer market.--
       ``(i) In general.--The term `dealer market' has the meaning 
     given the term by the Commission.
       ``(ii) Inclusions.--The term `dealer market' includes each 
     bilateral or multilateral agreement, contract, or transaction 
     determined by the Commission, regardless of the means of 
     execution of the agreement, contract, or transaction.
       ``(2) Exemption for transactions not on trading 
     facilities.--Except as provided in paragraph (4), nothing in 
     this Act shall apply to an agreement, contract, or 
     transaction in an exempt commodity that--
       ``(A) is entered into solely between persons that are 
     eligible contract participants at the time the persons enter 
     into the agreement, contract, or transaction; and
       ``(B) is not entered into on a trading facility.
       ``(3) Exemption for transactions on covered entities.--
     Except as provided in paragraphs (4), (5), and (7), nothing 
     in this Act shall apply to an agreement, contract, or 
     transaction in an exempt commodity that is--
       ``(A) entered into on a principal-to-principal basis solely 
     between persons that are eligible contract participants at 
     the time at which the persons enter into the agreement, 
     contract, or transaction; and
       ``(B) executed or traded on a covered entity.
       ``(4) Regulatory and oversight requirements.--
       ``(A) In general.--An agreement, contract, or transaction 
     described in paragraph (2) or (3) (and the covered entity on 
     which the agreement, contract, or transaction is executed) 
     shall be subject to--
       ``(i) sections 5b, 12(e)(2)(B), and 22(a)(4);
       ``(ii) the provisions relating to manipulation and 
     misleading transactions under sections 4b, 4c(a), 4c(b), 4o, 
     6(c), 6(d), 6c, 6d, 8a, and 9(a)(2); and
       ``(iii) the provisions relating to fraud and misleading 
     transactions under sections 4b, 4c(a), 4c(b), 4o, and 8a.
       ``(B) Transactions exempted by commission action.--
     Notwithstanding any exemption by the Commission under section 
     4(c), an agreement, contract, or transaction described in 
     paragraph (2) or (3) shall be subject to the authorities in 
     clauses (i), (ii), and (iii) of subparagraph (A).
       ``(5) Covered entities.--An agreement, contract, or 
     transaction described in paragraph (3) and the covered entity 
     on which the agreement, contract, or transaction is executed, 
     shall be subject to (to the extent the Commission determines 
     appropriate)--
       ``(A) section 5a, to the extent provided in section 5a(g)) 
     and 5d;
       ``(B) consistent with section 4i, a requirement that books 
     and records relating to the business of the covered entity on 
     which the

[[Page 14464]]

     agreement, contract, or transaction is executed be made 
     available to representatives of the Commission and the 
     Department of Justice for inspection for a period of at least 
     5 years after the date of each transaction, including--
       ``(i) information relating to data entry and transaction 
     details sufficient to enable the Commission to reconstruct 
     trading activity on the covered entity; and
       ``(ii) the name and address of each participant on the 
     covered entity authorized to enter into transactions; and
       ``(C) in the case of a transaction or covered entity 
     performing a significant price discovery function for 
     transactions in the cash market for the underlying commodity, 
     subject to paragraph (6), the requirements (to the extent the 
     Commission determines appropriate by regulation) that--
       ``(i) information on trading volume, settlement price, open 
     interest, and opening and closing ranges be made available to 
     the public on a daily basis;
       ``(ii) notice be provided to the Commission in such form as 
     the Commission may require;
       ``(iii) reports be filed with the Commission (such as large 
     trader position reports); and
       ``(iv) consistent with section 4i, books and records be 
     maintained relating to each transaction in such form as the 
     Commission may require for a period of at least 5 years after 
     the date of the transaction.
       ``(6) Proprietary information.--In carrying out paragraph 
     (5)(C), the Commission shall not--
       ``(A) require the real-time publication of proprietary 
     information;
       ``(B) prohibit the commercial sale or licensing of real-
     time proprietary information; and
       ``(C) publicly disclose information regarding market 
     positions, business transactions, trade secrets, or names of 
     customers, except as provided in section 8.
       ``(7) Notification, disclosures, and other requirements for 
     covered entities.--A covered entity subject to the exemption 
     under paragraph (3) shall (to the extent the Commission 
     determines appropriate)--
       ``(A) notify the Commission of the intention of the covered 
     entity to operate as a covered entity subject to the 
     exemption under paragraph (3), which notice shall include--
       ``(i) the name and address of the covered entity and a 
     person designated to receive communications from the 
     Commission;
       ``(ii) the commodity categories that the covered entity 
     intends to list or otherwise make available for trading on 
     the covered entity in reliance on the exemption under 
     paragraph (3);
       ``(iii) certifications that--

       ``(I) no executive officer or member of the governing board 
     of, or any holder of a 10 percent or greater equity interest 
     in, the covered entity is a person described in any of 
     subparagraphs (A) through (H) of section 8a(2);
       ``(II) the covered entity will comply with the conditions 
     for exemption under this subsection; and
       ``(III) the covered entity will notify the Commission of 
     any material change in the information previously provided by 
     the covered entity to the Commission under this paragraph; 
     and

       ``(iv) the identity of any derivatives clearing 
     organization to which the covered entity transmits or intends 
     to transmit transaction data for the purpose of facilitating 
     the clearance and settlement of transactions conducted on the 
     covered entity subject to the exemption under paragraph (3);
       ``(B)(i) provide the Commission with access to the trading 
     protocols of the covered entity and electronic access to the 
     covered entity with respect to transactions conducted in 
     reliance on the exemption under paragraph (3); and
       ``(ii) on special call by the Commission, provide to the 
     Commission, in a form and manner and within the period 
     specified in the special call, such information relating to 
     the business of the covered entity as a covered entity exempt 
     under paragraph (3), including information relating to data 
     entry and transaction details with respect to transactions 
     entered into in reliance on the exemption under paragraph 
     (3), as the Commission may determine appropriate--
       ``(I) to enforce the provisions specified in paragraph (4);
       ``(II) to evaluate a systemic market event; or
       ``(III) to obtain information requested by a Federal 
     financial regulatory authority to enable the authority to 
     fulfill the regulatory or supervisory responsibilities of the 
     authority;
       ``(C)(i) on receipt of any subpoena issued by or on behalf 
     of the Commission to any foreign person that the Commission 
     believes is conducting or has conducted transactions in 
     reliance on the exemption under paragraph (3) on or through 
     the covered entity relating to the transactions, promptly 
     notify the foreign person of, and transmit to the foreign 
     person, the subpoena in a manner that is reasonable under the 
     circumstances, or as specified by the Commission; and
       ``(ii) if the Commission has reason to believe that a 
     person has not timely complied with a subpoena issued by or 
     on behalf of the Commission under clause (i), and the 
     Commission in writing directs that a covered entity relying 
     on the exemption under paragraph (3) deny or limit further 
     transactions by the person, deny that person further trading 
     access to the covered entity or, as applicable, limit that 
     access of the person to the covered entity for liquidation 
     trading only;
       ``(D) comply with the requirements of this subsection 
     applicable to the covered entity and require that each 
     participant, as a condition of trading on the covered entity 
     in reliance on the exemption under paragraph (3), agree to 
     comply with all applicable law;
       ``(E) certify to the Commission that the covered entity has 
     a reasonable basis for believing that participants authorized 
     to conduct transactions on the covered entity in reliance on 
     the exemption under paragraph (3) are eligible contract 
     participants;
       ``(F) maintain sufficient capital, commensurate with the 
     risk associated with transactions; and
       ``(G) not represent to any person that the covered entity 
     is registered with, or designated, recognized, licensed, or 
     approved by the Commission.
       ``(8) Hearing.--A person named in a subpoena referred to in 
     paragraph (7)(C) that believes the person is or may be 
     adversely affected or aggrieved by action taken by the 
     Commission under this subsection, shall have the opportunity 
     for a prompt hearing after the Commission acts under 
     procedures that the Commission shall establish by rule, 
     regulation, or order.
       ``(9) Private regulatory organizations.--
       ``(A) Delegation of functions under core principles.--A 
     covered entity may comply with any core principle under 
     subparagraph (B) that is applicable to the covered entity 
     through delegation of any relevant function to--
       ``(i) a registered futures association under section 17; or
       ``(ii) another registered entity.
       ``(B) Core principles.--The Commission may establish core 
     principles requiring a covered entity to monitor trading to--
       ``(i) prevent fraud and manipulation;
       ``(ii) prevent price distortion and disruptions of the 
     delivery or cash settlement process;
       ``(iii) ensure that the covered entity has adequate 
     financial, operational, and managerial resources to discharge 
     the responsibilities of the covered entity; and
       ``(iv) ensure that all reporting, recordkeeping, notice, 
     and registration requirements under this subsection are 
     discharged in a timely manner.
       ``(C) Responsibility.--A covered entity that delegates a 
     function under subparagraph (A) shall remain responsible for 
     carrying out the function.
       ``(D) Noncompliance.--If a covered entity that delegates a 
     function under subparagraph (A) becomes aware that a 
     delegated function is not being performed as required under 
     this Act, the covered entity shall promptly take action to 
     address the noncompliance.
       ``(E) Violation of core principles.--
       ``(i) In general.--If the Commission determines, on the 
     basis of substantial evidence, that a covered entity is 
     violating any applicable core principle specified in 
     subparagraph (B), the Commission shall--

       ``(I) notify the covered entity in writing of the 
     determination; and
       ``(II) afford the covered entity an opportunity to make 
     appropriate changes to bring the covered entity into 
     compliance with the core principles.

       ``(ii) Failure to make changes.--If, not later than 30 days 
     after receiving a notification under clause (i)(I), a covered 
     entity fails to make changes that, as determined by the 
     Commission, are necessary to comply with the core principles, 
     the Commission may take further action in accordance with 
     this Act.
       ``(F) Reservation of emergency authority.--Nothing in this 
     paragraph limits or affects the emergency powers of the 
     Commission provided under section 8a(9).
       ``(10) Metals.--Notwithstanding any other provision of this 
     subsection, an agreement, contract, or transaction in 
     metals--
       ``(A) shall not be subject to this subsection (as amended 
     by section __05 of the Energy Policy Act of 2003); and
       ``(B) shall be subject to this subsection and subsection 
     (h) (as those subsections existed on the day before the date 
     of enactment of the Energy Policy Act of 2003).
       ``(11) No effect on other authority.--This subsection shall 
     not affect the authority of the Federal Energy Regulatory 
     Commission under the Federal Power Act (16 U.S.C. 791a et 
     seq.) or the Natural Gas Act (15 U.S.C 717 et seq.).''.

     SEC. __06. PROHIBITION OF FRAUDULENT TRANSACTIONS.

       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 person, 
     directly or indirectly, in or in connection with any account, 
     or any offer to enter into, the entry into, or the 
     confirmation of the execution of, any agreement, contract, or 
     transaction subject to this Act--
       ``(1) to cheat or defraud or attempt to cheat or defraud 
     any person (but this paragraph does not impose on parties to 
     transactions executed on or subject to the rules of 
     designated contract markets or registered derivative 
     transaction execution facilities a

[[Page 14465]]

     legal duty to provide counterparties or any other market 
     participants with any material market information);
       ``(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 for any person any false record (but this 
     paragraph does not impose on parties to transactions executed 
     on or subject to the rules of designated contract markets or 
     registered derivative transaction execution facilities a 
     legal duty to provide counterparties or any other market 
     participants with any material market information);
       ``(3) willfully to deceive or attempt to deceive any person 
     by any means whatsoever (but this paragraph does not impose 
     on parties to transactions executed on or subject to the 
     rules of designated contract markets or registered derivative 
     transaction execution facilities a legal duty to provide 
     counterparties or any other market participants with any 
     material market information); or
       ``(4) except as permitted in written rules of a board of 
     trade designated as a contract market or derivatives 
     transaction execution facility on which the agreement, 
     contract, or transaction is traded and executed--
       ``(A) to bucket an order;
       ``(B) to fill an order by offset against 1 or more orders 
     of another person; or
       ``(C) willfully and knowingly, for or on behalf of any 
     other person and without the prior consent of the person, to 
     become--
       ``(i) the buyer with respect to any selling order of the 
     person; or
       ``(ii) the seller with respect to any buying order of the 
     person.''.

     SEC. __07. FERC LIAISON.

       Section 2(a)(9) of the Commodity Exchange Act (7 U.S.C. 
     2(a)(9)) is amended by adding at the end the following:
       ``(C) Liaison with federal energy regulatory commission.--
     The Commission shall, in cooperation with the Federal Energy 
     Regulatory Commission, maintain a liaison between the 
     Commission and the Federal Energy Regulatory Commission.''.

     SEC. __08. CRIMINAL AND CIVIL PENALTIES.

       (a) Enforcement Powers of Commission.--Section 6(c) of the 
     Commodity Exchange Act (7 U.S.C. 9, 15) is amended in 
     paragraph (3) of the tenth sentence--
       (1) by inserting ``(A)'' after ``assess such person''; and
       (2) by inserting after ``each such violation'' the 
     following: ``, or (B) in any case of manipulation of, or 
     attempt to manipulate, the price of any commodity, a civil 
     penalty of not more than the greater of $1,000,000 or triple 
     the monetary gain to such person for each such violation,''.
       (b) Manipulations and Other Violations.--Section 6(d) of 
     the Commodity Exchange Act (7 U.S.C. 13b) is amended in the 
     first sentence--
       (1) by striking ``paragraph (a) or (b) of section 9 of this 
     Act'' and inserting ``subsection (a), (b), or (f) of section 
     9''; and
       (2) by striking ``said paragraph 9(a) or 9(b)'' and 
     inserting ``subsection (a), (b), or (f) of section 9''.
       (c) Nonenforcement of Rules of Government or Other 
     Violations.--Section 6b of the Commodity Exchange Act (7 
     U.S.C. 13a) is amended--
       (1) in the first sentence--
       (A) by inserting ``section 2(g)(9),'' after ``sections 5 
     through 5c,''; and
       (B) by inserting before the period at the end the 
     following: ``, or, in any case of manipulation of, or an 
     attempt to manipulate, the price of any commodity, a civil 
     penalty of not more than $1,000,000 for each such 
     violation''; and
       (2) in the second sentence, by inserting before the period 
     at the end the following: ``, except that if the failure or 
     refusal to obey or comply with the order involved any offense 
     under section 9(f), the registered entity, director, officer, 
     agent, or employee shall be guilty of a felony and, on 
     conviction, shall be subject to penalties under section 
     9(f)''.
       (d) Action To Enjoin or Restrain Violations.--Section 6c(d) 
     of the Commodity Exchange Act (7 U.S.C. 13a-1(d)) is amended 
     by striking ``(d)'' and all that follows through the end of 
     paragraph (1) and inserting the following:
       ``(d) Civil Penalties.--In any action brought under this 
     section, the Commission may seek and the court shall have 
     jurisdiction to impose, on a proper showing, on any person 
     found in the action to have committed any violation--
       ``(1) a civil penalty in the amount of not more than the 
     greater of $100,000 or triple the monetary gain to the person 
     for each violation; or
       ``(2) in any case of manipulation of, or an attempt to 
     manipulate, the price of any commodity, a civil penalty in 
     the amount of not more than the greater of $1,000,000 or 
     triple the monetary gain to the person for each violation.''.
       (e) Violations Generally.--Section 9 of the Commodity 
     Exchange Act (7 U.S.C. 13) is amended--
       (1) by redesignating subsection (f) as subsection (e); and
       (2) by adding at the end the following:
       ``(f) Price Manipulation.--It shall be a felony punishable 
     by a fine of not more than $1,000,000 for each violation or 
     imprisonment for not more than 10 years, or both, together 
     with the costs of prosecution, for any person--
       ``(1) to manipulate or attempt to manipulate the price of 
     any commodity in interstate commerce, or for future delivery 
     on or subject to the rules of any registered entity;
       ``(2) to corner or attempt to corner any such commodity;
       ``(3) knowingly to deliver or cause to be delivered (for 
     transmission through the mails or interstate commerce by 
     telegraph, telephone, wireless, or other means of 
     communication) false or misleading or knowingly inaccurate 
     reports concerning market information or conditions that 
     affect or tend to affect the price of any commodity in 
     interstate commerce; or
       ``(4) knowingly to violate section 4 or 4b, any of 
     subsections (a) through (e) of subsection 4c, or section 4h, 
     4o(1), or 19.''.

     SEC. __09. CONFORMING AMENDMENTS.

       (a) Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is 
     amended--
       (1) in subsection (d)(1), by striking ``section 5b'' and 
     inserting ``section 5a(g), 5b,'';
       (2) in subsection (e)--
       (A) in paragraph (1), by striking ``, 2(g), or 2(h)(3)''; 
     and
       (B) in paragraph (3), by striking ``2(h)(5)'' and inserting 
     ``2(g)(7)'';
       (3) by redesignating subsection (i) as subsection (h); and
       (4) in subsection (h) (as redesignated by subparagraph 
     (C))--
       (A) in paragraph (1)--
       (i) by striking ``No provision'' and inserting ``In 
     general.--Subject to subsection (g), no provision''; and
       (ii) in subparagraph (A)--

       (I) by striking ``section 2(c), 2(d), 2(e), 2(f), or 2(g) 
     of this Act'' and inserting ``subsection (c), (d), (e), or 
     (f)''; and
       (II) by striking ``section 2(h)'' and inserting 
     ``subsection (g)''; and

       (B) in paragraph (2), by striking ``No provision'' and 
     inserting ``In general.--Subject to subsection (g), no 
     provision''.
       (b) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) 
     is amended in the first sentence by inserting ``, or pursuant 
     to an exemption under section 4(c)'' after ``transaction 
     execution facility''.
       (c) Section 8a(9) of the Commodity Exchange Act (7 U.S.C. 
     12a(9)) is amended--
       (1) by inserting ``or covered entity under section 2(g)'' 
     after ``direct the contract market'';
       (2) by striking ``on any futures contract''; and
       (3) by inserting ``or covered entity under section 2(g)'' 
     after ``given by a contract market''.

  Mrs. FEINSTEIN. Madam President, once again, what we are seeking to 
do is close a loophole that was created in 2000 when this Congress 
passed the Commodity Futures Modernization Act. That act exempted just 
energy and metals. It was not the intention actually to do that. The 
Senate part of that bill did not exempt them. What happened was Enron 
went to the House and Enron secured an exemption of energy and metals 
in the House. That exemption was handled in the conference, and the 
Senate language was not in the bill.
  The exemption was effectively created. The loophole was created. We 
are just trying to eliminate that loophole. We are not attacking 
derivatives. All we are saying is: If you do this kind of trading, you 
must keep a record just as anybody else does. You must be transparent. 
You must have an audit trail, and you are subject to any fraud or 
manipulation oversight by the Commodity Futures Trading Commission.
  This is where it gets a little complicated. If I sell energy to you 
and you deliver, then that is covered by the Federal Energy Regulatory 
Commission. If I sell energy to you and you sell it to a third person 
or entity that sells it to a fourth entity that sells it to a fifth 
entity and then it goes into the field, those interim trades are not 
covered.
  That is what we seek to cover because that is where the games exist. 
It is a rather subtle point, but it is also an important point.
  I heard people say that this will stifle the market. I will tell you 
what has been happening out there. Without transparency and without 
record keeping stifles the market.
  When Mr. Fortney was arrested last week for creating schemes such as 
Ricochet, Death Star, and Get Shorty, you don't think that stifles the 
market when you have other traders pleading guilty to fraud and wire 
fraud?
  Does that not stifle the market? And does that not give the average 
consumer the belief that they cannot trust this marketplace as being 
fair and transparent? I believe it does. More fundamentally, I believe 
the rules that

[[Page 14466]]

govern the marketplace should be rules to protect the average consumer, 
not the big boys; they can take care of themselves. But the average 
consumer has to have confidence in the marketplace that it is fair and 
that it is transparent.
  I would like to correct the idea that this amendment has not gone 
through regular order. I moved this amendment last year to the Energy 
bill. Senator Gramm of Texas, who, incidentally, subsequently went to 
work for EnronOnline in its new life with UBS Warburg--which is fine--
argued against my amendment. We tried to settle our differences. It 
took quite some time. We could not settle our differences on this 
amendment, and we did have a vote.
  Another reason for the vote is there were people who believed this 
had not had enough committee hearing. So we had a vote, and I think we 
got 48 votes. The amendment went to the Agriculture Committee. The 
Agriculture Committee held hearings. The staff of both sides reviewed 
the legislation. Senator Harkin, who was chairman, and Senator Lugar, 
who was ranking member, are both cosponsors of this amendment.
  The problem is, the end of the session came without a markup, so this 
is really the opportunity we have to place this amendment into some 
form of law, and so we take this opportunity.
  I also wish to say that the President's working group in 1999, in 
their report--this was before the Commodity Futures Modernization Act 
of 2000--very specifically said, on page 2 of their report, that:

       An exclusion from the CEA [Commodities Exchange Act] for 
     electronic trading systems for derivatives, provided that the 
     systems limit participation to sophisticated counterparties 
     trading for their own accounts and are not used to trade 
     contracts that involve non-financial commodities with finite 
     supplies. . . .

  In other words, they are saying that commodities with finite supplies 
should be included in the bill, but they are recommending that those 
that do not have finite supplies, such as financials derivatives, not 
be included in the bill. Now, apparently, they are changing their 
position. But I want to make very clear that was the position of the 
``Over-the-Counter Derivatives Markets and the Commodity Exchange Act, 
Report of The President's Working Group on Financial Markets'' dated 
November 1999. And the Senate version of the Commodity Futures 
Modernization Act actually did just what this working group stated.
  Again, to refute the allegation that I am in some way blaming 
derivatives for the western energy crisis--I am not--I am blaming this 
loophole which allows all this secret trading, which we have seen 
result in fraudulent schemes, to try to close that loophole. And the 
way to close it is to bring the light of day to it. That is what we are 
trying to do.
  I pointed out yesterday, because some people said, well, we need to 
study this more, that it has been studied more and that the ``Final 
Report On Price Manipulation In Western Markets, Fact-Finding 
Investigation Of Potential Manipulation Of Electric And Natural Gas 
Prices,'' which was prepared by the staff of the Federal Energy 
Regulatory Commission, and dated March 2003, says the following as one 
of their recommendations:

       Recommend that Congress consider giving direct authority to 
     a Federal agency to ensure that electronic trading platforms 
     for wholesale sales of electric energy and natural gas in 
     interstate commerce are monitored--

  That is what we do--

     and provide market information that is necessary for price 
     discovery in competitive energy markets.

  That is exactly what this does, as recommended by this report of the 
Federal Energy Regulatory Commission.
  With the modification I made, metals will have the same level of 
oversight as exists under current law today.
  Now, let me go back again to 2000. I mentioned the change that was 
made to accommodate Enron lobbying to the Commodity Futures 
Modernization Act. It also did not take long for EnronOnline and others 
in the energy sector to take advantage of this new freedom by trading 
energy derivatives absent any transparency or regulatory oversight. 
Thus, after the 2000 legislation--and really right away--EnronOnline 
began to trade energy derivatives bilaterally without being subject to 
proper regulatory oversight.
  It should not surprise anyone that without this transparency, prices 
soared. In 2000, if Enron's derivatives business had been a stand-alone 
company, it would have been the 256th largest company in America. That 
year, Enron claimed it made more money from its derivatives business--
$7.23 billion--than Tyson Foods made from selling chicken. That is 
according to author Robert Bryce, who wrote a book on Enron called 
``Pipe Dreams.''
  EnronOnline rapidly became the biggest platform for electronic energy 
trading. But unlike regulated exchanges, such as the New York 
Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board 
of Trade, EnronOnline was not registered with the CFTC, the Commodity 
Futures Trading Commission, so it set its own standards. And that is 
the problem. Traders and others in the energy sector came to rely on 
EnronOnline for pricing information. Yet the company's control over 
this information, and its ability to manipulate it, was large.
  As this same author, Robert Bryce, describes--and let me quote--

       Enron didn't just own the casino. On any given deal, Enron 
     could be the house, the dealer, the oddsmaker, and the guy 
     across the table you're trying to beat in diesel fuel 
     futures, gas futures, or the California electricity market.

  The Electric Power Supply Association, EPSA, has sent a letter to all 
Senators asking them to oppose our oversight amendment. This should not 
be strange to anybody because its members are exactly the same 
companies that are being investigated and have been investigated by 
FERC for wrongdoing in the western energy crisis. It is AES 
Corporation; it is BP Energy; it is Duke Energy; it is Mirant Energy; 
it is Reliant Energy; it is UBS Warburg, which purchased Enron's 
trading unit; and it is Williams Energy. Now, with others, they are all 
members of EPSA, not companies that Westerners trust very much these 
days in light of what we have been through.
  Now, I want to just document some of this.
  Let me quickly run through these again because, again, a lot of these 
round-trip trades were done on the Internet.
  Other schemes were carried out on the Internet. Let's just go through 
this. Duke Energy disclosed that $1.1 billion worth of trades were 
round trip since 1999. Roughly two-thirds of these were done on the 
Intercontinental Exchange, which is an online trading platform owned by 
the banks, again, where there is no transparency, no net capital 
requirements, and no recordkeeping whatsoever. Now, this also meant 
that thousands of subscribers would have seen false price signals.
  Why would they see false price signals? That is because of the nature 
of a wash or round-trip trade. Again, a wash or round-trip trade would 
be that I am going to sell you energy at a certain price and you are 
going to sell me energy at a certain price, but no energy ever changes 
hands; yet we both post sales. That is what a wash trade or a round-
trip trade is.
  A class action suit accused the El Paso Corporation of engaging in 
dozens of round-trip energy trades that artificially bolstered its 
revenues and trading volumes over the last 2 years.
  CMS Energy admitted conducting wash energy trades that artificially 
inflated its revenue by more than $4.4 billion. These round-trip trades 
accounted for 80 percent of their trade in 2001. So 80 percent of this 
company's trades in 2001--in the heart of the energy crisis--were not 
trades at all. No energy ever traded hands. They just boosted their 
sales--artificially.
  This is another facet of artificially filing false reports: reporting 
fictitious natural gas transactions to an industry publication. You can 
read it for yourself. The overwhelming figure in this is, if you look 
at what was done with energy and you look at California, where one year 
the total cost of energy was $7 billion and the next year it was

[[Page 14467]]

$28 billion, which is a 400 percent increase, there is no way that 
could be legitimate. There is no way the energy need of a State could 
increase 400 percent in 1 year. Demand didn't increase 400 percent.
  So without this type of legislation, there really is insufficient 
authority to investigate and prevent fraud and price manipulations 
since parties making the trade are not required to keep a record. What 
we would require them to do is keep a record. Therefore, the Commodity 
Futures Trading Commission, in the event of many of these interim 
trades, and the FERC, where energy is directly delivered as a product 
of a trade, has the ability to do the investigation based on records. 
If you don't keep records, it is very hard to prove that.
  I would like to repeat that this amendment does not ban trades. This 
amendment does not affect financial derivatives. This amendment would 
only require oversight and transparency for those energy trades that 
are now taking place within this loophole, and it would provide 
oversight, as recommended in the FERC report.
  We are very proud to have the support of the National Rural Electric 
Cooperative Association, the Derivative Study Center, the American 
Public Gas Association, American Public Power Association, California 
Municipal Utilities Association, Southern California Public Power 
Authority, Transmission Excess Policy Study Group, U.S. Public Interest 
Research Group, Consumers Union, Consumers Federation of America, 
Calpine, Southern California Edison, Pacific Gas and Electric, and FERC 
Chairman Patrick Wood.
  Again, this amendment is not going to do anything to change what 
happened in California and the West. But it does provide the necessary 
authority for the CFTC and the FERC to help protect against another 
energy crisis.
  I might say I am very suspicious of people who want to do trading in 
the dark. I am very suspicious when they say, oh, we are so 
sophisticated you cannot possibly know how this is done and you are 
going to stifle trade, because they don't want to keep a record of that 
trade, they don't want transparency, they don't want to keep an audit 
on trade, and they don't want any Government agency assuring there 
isn't fraud or manipulation. I am doubly suspicious of them, 
particularly because of the fraud and manipulation we now know took 
place.
  So, please, don't tell me I am not sophisticated enough to 
understand. I understand plenty. I understand, when the price goes from 
$7 billion to $28 billion in a very short period of time, that you have 
to begin to look. I understand now that these arrests are occurring and 
the manipulations of Ricochet and Death Star and Get Shorty and wash 
trades are all becoming well known. I understand. The point is it is 
wrong. The point is, you cannot prove it is wrong if there are no 
records of those trades.
  So what we are saying is these trades can go on, but you keep 
records. We give the CFTC the responsibility to set net capital 
requirements commensurate with risk. That is good oversight for the 
public and that is good oversight for anybody who is going to invest, 
because when net capital is not available and the house begins to 
collapse, as it did with Enron, the company goes bankrupt.
  I think I have made my case. We have gone over this. I sent this 
legislation to the head of Goldman Sachs. They run an electronic 
exchange. I said, please, if you have problems with it, let me know. I 
did not hear. We have vetted it and talked over the past year and a 
half, 2 years, with virtually anyone who wanted to come in and talk 
with us about it.
  Mr. President, I am absolutely determined and I am going to come back 
and back and back until this loophole is closed. Nobody can tell me I 
am not sophisticated enough to know that sunshine and records and 
transparency are critical to the effective functioning of a free 
marketplace, because I believe that just as much as I believe in the 
Pledge of Allegiance--and I do believe in the Pledge of Allegiance. 
When you allow hiding and you allow these trades to take place 
surreptitiously, that is when there are problems.
  I am afraid I have said this over and over again, but we went through 
it and we saw it. We read the 3,000 pages California has sent to the 
FERC. This is another intrigue. Can you imagine that no State has the 
right today to present evidence to the FERC of fraud or manipulation?
  California had to go to the Supreme Court to get that right, and then 
when we got that right, we were told it had to be in in 100 days. 
California submitted 3,000 pages within the 100 days, and it is loaded 
with examples of fraud and manipulation.
  We know there is fraud, we know there is manipulation, and we know 
that was present in the western energy crisis, and all we are trying to 
do is bring light of day to one loophole that was in the Commodity 
Futures Modernization Act because a major offender lobbied for it in 
the laws. It was not in the Senate bill. The Senate bill originally 
covered this, but they lobbied in the House. It was taken out in 
conference, and the loophole was created.
  If the past 3 years have not been evidence enough, if the arrests are 
not evidence enough, if we do not want a transparent marketplace, if we 
want people to be able to do this trading-- and we can tell you the 
language of some of these trades; if they knew they were being 
recorded, I do not think they would do it in the way they did it--if we 
want to allow those procedures to continue to happen, that is what a 
motion to table and a tabling vote will do.
  I am very hopeful and I am asking my colleagues to vote nay on the 
motion to table and vote yea on the modified amendment which is now at 
the desk.
  I thank the Chair, and I yield the floor. Mr. President, I suggest 
the absence of a quorum.
  The PRESIDING OFFICER (Mr. Hagel). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                      Amendment No. 877, Withdrawn

  Mr. REID. Mr. President, I ask that the Reid amendment be withdrawn.
  The PRESIDING OFFICER. The Senator has that right. The amendment is 
withdrawn.
  Mr. REID. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. COCHRAN. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. COCHRAN. Mr. President, the Senate is considering the amendment 
offered by the distinguished Senator from California, Mrs. Feinstein, 
to the Energy bill now before the Senate. This amendment seeks to 
transfer, in effect, regulatory authority from the body that now has 
that authority, the Commodity Futures Trading Commission, to the 
Federal Energy Regulatory Commission.
  There are several good reasons why the Senate should not adopt this 
amendment and force that transfer of regulatory authority. First, the 
Federal Energy Regulatory Commission has special responsibilities but 
this will give them new and different responsibilities where there is 
no experience, there is no body of law or regulatory decisionmaking on 
which to base the assumption that this kind of regulation or this 
regulation carried out by this Commission would be of any better 
character or type than that which would be exercised by the Commodity 
Futures Trading Commission.
  The Commodity Futures Trading Commission has been operating for some 
time now and has actually shown that it is capable of taking action to 
prevent abuses and illegal activities that can occur in these trading 
markets and in the energy trading area as well.
  The Feinstein amendment would give the Federal Energy Regulatory 
Commission authority over areas that are

[[Page 14468]]

currently regulated by the Commodity Futures Trading Commission and 
would require, in addition, regulation of energy derivatives. These are 
complex instruments. They are used to transfer risks among traders and 
they are important tools in the energy markets today.
  Congress considered in the past, when it took up the Commodity 
Futures Modernization Act of 2000 several years ago, regulating these 
instruments. But it decided not to do so. The Federal Energy Regulatory 
Commission has no current responsibility in regulating derivatives.
  It seems to me that when you look to see who has been carrying out 
duties now complained about by some Senator, you can find that the 
Commodity Futures Trading Commission has a record of taking legal 
action against companies such as Enron, El Paso, and others regarding 
energy market problems. The Commodity Futures Trading Commission has 
recovered millions of dollars in fines from these companies, and it has 
several ongoing investigations in this area, and more charges are 
possible.
  To transfer now the regulatory authority to a different commission 
and purport to take away the authority from the Commodity Futures 
Trading Commission is going to create disruption in ongoing 
investigations and actions that are taken to discipline this market and 
make it more predictable and trustworthy.
  The Senator from California has suggested that the amendment she has 
offered is needed to prevent wash trades. These are trades that are 
fictitious. A company will buy a commodity and then sell it creating 
the impression that this is a legitimate trade. It establishes a price. 
It establishes volume. But it is fictitious trading. It shouldn't have 
that effect but it does.
  The Commodity Futures Trading Commission has taken action to 
discourage that activity and to punish that activity. It has specific 
authority to do that under the Commodity Exchange Act. The Commodity 
Futures Trading Commission has brought several actions under that 
authority in the last several years. Its authority to take this kind of 
action has been upheld by two decisions from U.S. appeals courts.
  Just this year, the Commodity Futures Trading Commission has 
recovered tens of millions of dollars from merchant energy traders for 
so-called wash trades and false trades.
  Another claim that is made in support of the amendment of the Senator 
from California is that because the exempt commercial markets are not 
regulated under the Commodity Exchange Act that they have no regulatory 
oversight. That is just not true. Those markets are required by statute 
today to have electronic audit trails. They are required by statute to 
keep records for 5 years. They are required to be subject to the 
Commodity Futures Trading Commission's antifraud and antimanipulation 
authorities. They are subject to special call examinations by the 
Commodity Futures Trading Commission. To suggest there are no 
regulatory requirements on those exempt commercial markets is just not 
true.
  It is also claimed that the Feinstein amendment would impose capital 
requirements on exempt commercial markets. It would require capital 
requirements. That doesn't necessarily solve anything. Capital 
requirements aren't imposed now on the Chicago Mercantile Exchange, or 
the New York Mercantile Exchange, or the Chicago Board of Trade. They 
are not viewed as necessary. Those markets have been functioning 
without capital requirements. To now impose them on exempt commercial 
markets is inappropriate and unnecessary.
  Capital requirements or other exempt commercial markets would be 
difficult to establish. They would change on a regular basis--weekly 
probably--because of new contracts being offered, and change financial 
positions of participants. Capital requirements would impose 
significant costs and there are no identifiable benefits.
  The amendment would also impose large trader reporting on exempt 
commercial markets. Large trader reporting works on retail futures 
exchanges with standardized contracts but would not work on exempt 
commercial markets. They don't have the same type of standardization. 
Large trader reporting on exempt commercial markets could actually lead 
to misleading information being provided to the public. Large trader 
reporting is used for market surveillance in retail futures markets.
  The Commodity Futures Trading Commission's statutory authority for 
exempt commercial markets is after the fact, antifraud and 
antimanipulation enforcement, and is inconsistent with a large trader 
reporting scheme.
  In closing, the Senate has to take into account the fact that the 
leading figures in our Government who are responsible for enforcement 
and managing the departments that understand financial markets and the 
impact they have on our economy and on our place in the world economy 
are urging that the Senate not adopt the Feinstein amendment.
  This is a letter which was put on every Senator's desk in the last 
several minutes signed by John W. Snow, Secretary of the Department of 
the Treasury, Alan Greenspan, Chairman of the Board of Governors of the 
Federal Reserve System, William H. Donaldson, Chairman, U.S. Securities 
and Exchange Commission, and James E. Newsome, Chairman of the 
Commodity Futures Trading Commission.
  With the permission of the Chair, I will read the letter.
  It is addressed to Senator Crapo of Idaho and Senator Miller of 
Georgia.

       Thank you for your letter of June 10, 2003, requesting the 
     views of the President's Working Group on Financial Markets 
     [PWG] on proposed Amendment No. 876--

  That is the Feinstein amendment--

     to S. 14, the pending energy bill.
       As this amendment is similar to a proposed amendment on 
     which you sought the views of the PWG last year, we reassert 
     the positions expressed in the PWG's response dated September 
     18, 2002, a copy of which is enclosed. The proposed amendment 
     could have significant unintended consequences for an 
     extremely important risk management market--serving 
     businesses, financial institutions, and investors throughout 
     the U.S. economy. For that reason, we believe that adoption 
     of this amendment is ill-advised.
       We would also point out that, since we wrote that letter 
     last year, various federal agencies have initiated actions 
     against wrongdoing in the energy markets. As you note, the 
     CFTC has brought formal actions against Enron, Dynegy, and El 
     Paso for market manipulation, wash (or roundtrip) trades, 
     false reporting of prices, and operation of illegal markets. 
     The Securities and Exchange Commission, the Federal Energy 
     Regulatory Commission, and the Department of Justice have 
     also initiated formal actions in the energy sector. Some of 
     these actions have already resulted in substantial monetary 
     penalties and other sanctions. These initial actions alone 
     make clear that wrongdoing in the energy markets are fully 
     subject to the existing enforcement authority of federal 
     regulators.
       The Commodity Futures Modernization Act of 2000 brought 
     important legal certainty to the risk management marketplace. 
     Businesses, financial institutions, and investors throughout 
     the economy rely upon derivatives to protect themselves from 
     market volatility triggered by unexpected economic events. 
     This ability to manage risks makes the economy more resilient 
     and its importance cannot be underestimated. In our judgment, 
     the ability of private counterpart surveillance to 
     effectively regulate these markets can be undermined by 
     inappropriate extensions of government regulation.

  It is clear from the letter that the Senate has received no response 
to inquiries from Senator Crapo and Senator Miller clearly explaining 
the dangers in adopting the Feinstein amendment.
  At the appropriate time it will be our intention to move to table the 
Feinstein amendment and ask for the yeas and nays at that time. I hope 
Senators will carefully review the information we now have available on 
each Senator's desk and vote to table the Feinstein amendment.
  Madam President, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mrs. Dole). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. FRIST. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

[[Page 14469]]


  Mr. FRIST. Madam President, I ask unanimous consent that the vote in 
relation to the Feinstein amendment No. 876 occur at 3:15 today, with 
no amendments in order to the amendment prior to the vote.
  The PRESIDING OFFICER. Is there objection?
  Mr. REID. Madam President, it is my understanding that would be a 
motion to table.
  Mr. FRIST. That is correct.
  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered.

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