[Congressional Record (Bound Edition), Volume 149 (2003), Part 4]
[Senate]
[Page 5296]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            ENERGY OVERSIGHT

  Mr. LEAHY. Mr. President, I am pleased to join Senator Dianne 
Feinstein in sponsoring the Energy Oversight Bill. This bill clarifies 
the scope of the existing regulatory authority of the Commodity Futures 
Trading Commission, CFTC, over markets in over-the-counter, OTC, 
derivatives, including its anti-fraud and anti-manipulation 
jurisdiction over exempt commodities such as metals and energy.
  Over-the-counter derivatives markets have assumed an increasingly 
large role in the U.S. economy. A recent conservative estimate put the 
size of the global OTC derivatives market at $111 trillion. The U.S. 
share of that market is estimated to be at least two-thirds. 
Derivatives based on ``exempt commodities,'' such as energy and metals, 
make up a small percentage--probably no more than 2 percent--of the 
total OTC derivatives market. However, derivatives play an increasingly 
important role in energy and metals markets, which are in turn critical 
to our overall economy.
  The energy markets are among the largest and most dynamic in the 
United States. Hundreds of billions of dollars in energy products--
which include electricity, natural gas, crude oil, and gasoline--are 
traded each year in the United States--both on-exchange and in the 
over-the-counter markets.
  We are all well aware of the tragedies that occurred last fall 
surrounding the collapse of Enron. For instance, there have been 
numerous stories in the press regarding allegations of manipulations in 
energy markets. I understand the CFTC currently is in the process of 
pursuing a comprehensive, detailed investigation of allegations raised 
by the Enron collapse.
  However, some have suggested that following passage of Commodity 
Futures Modernization Act, CFMA, in 2000 the CFTC does not in fact have 
authority to effectively and successfully investigate and punish fraud 
and manipulation in derivatives markets for exempt commodities--
particularly energy and metals. In a hearing held by the Senate 
Agriculture Committee last July, questions were raised about the CFTC's 
ability to prevent fraud and manipulation in the first place.
  If that is the case, not only do these transactions fall outside the 
jurisdictional reach of the CFTC, but in most cases, they are beyond 
the reach of any other federal financial regulator. Thus, we have a gap 
in the oversight of exempt commodity transactions. And plainly, this 
gap was not something Congress intended when it passed the CFMA.
  This legislation puts these questions to rest.
  Our bill clarifies that the CFTCs anti- fraud and anti-manipulation 
authority applies to all exempt commodity transactions and requires 
derivatives marketplaces like electronic swap exchanges--like the now-
defunct ``Enron Online"--to adhere to certain, minimal regulatory 
obligations: among them are transparency, disclosure, and reporting.
  It recognizes the benefits of market innovation by preserving the 
long-sought legal certainty for swaps--they remain for the most part 
``exempt'' from CFTC jurisdiction. At the same time, however, the bill 
ensures that all derivatives transactions are subject to the 
commission's fraud and manipulation authorities. It would not require 
the registration of swap counter-
parties, but would require that they maintain books and records of 
transactions--something that should be routine practice in the 
industry. Finally, the legislation recognizes that all exchange markets 
serve price discovery and hedging purposes by imposing modest 
transparency, disclosure, and reporting obligations.
  Experience has shown that measures designed to increase market 
transparency instill confidence in markets, attract investment, and 
increase market integrity by providing regulators with the means to 
monitor for fraud and manipulation. Application of these principles to 
derivatives markets generally is sound public policy, prudent business 
practice, and common sense. The consequent benefits extend not only to 
market users, but also to consumers.
  Accountability is important and must be restored because Enron is not 
alone. It is only a case study exposing the shortcomings in our current 
laws. Future debacles wait to be discovered not only by investigators 
or the media, but by the more than one in two Americans who depend on 
the transparency and integrity of our public markets.
  The majority of Americans depend on capital markets to invest in the 
future needs of their families--from their children's college fund to 
their retirement nest eggs. American investors deserve action. Congress 
must act now to restore confidence in the integrity of the public 
markets.
  Accountability and transparency help our markets work as they should, 
in ways that benefit investors, employees, consumers and our national 
economy. Our job is to make sure that there are adequate doses of 
accountability in our regulatory and legal system to prevent such 
occurrences in the future. The time has come for Congress to rethink 
and reform our laws in order to prevent corporate deceit, to protect 
investors and to restore full confidence in the capital markets.
  Unfortunately, in the wake of Enron, we are presently witnessing some 
of the best arguments in favor of such changes. U.S. energy markets are 
suffering a crisis in confidence. This modest legislation is a good 
first step toward restoring this lost confidence and returning energy 
markets to a path of growth and efficiency.

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