Speculation and Energy Prices: Legislative Responses

Speculation and Energy Prices:
Legislative Responses
Updated August 6, 2008
Mark Jickling
Specialist in Financial Economics
Government and Finance Division
Lynn J. Cunningham
Information Research Specialist
Knowledge Services Group

Speculation and Energy Prices: Legislative Responses
Summary
While most observers recognize that the fundamentals of supply and demand
have contributed to record energy prices in 2008, many also believe that the price of
oil and other commodities includes a “speculative premium.” In other words,
speculators who seek to profit by forecasting price trends are blamed for driving
prices higher than is justified by fundamentals.
In theory, this should not happen. Speculation is not a new phenomenon in
futures markets — the futures exchanges are essentially associations of professional
speculators. There are two benefits that arise from speculation and distinguish it
from mere gambling: first, speculators create a market where hedgers — producers
or commercial users of commodities — can offset price risk. Hedgers can use the
markets to lock in today’s price for transactions that will occur in the future,
shielding their businesses from unfavorable price changes. Second, a competitive
market where hedgers and speculators pool their information and trade on their
expectations of future prices is the best available mechanism to determine prices that
will clear markets and ensure efficient allocation of resources.
If one assumes that current prices are too high, that means that the market is not
performing its price discovery function well. There are several possible explanations
for why this might happen. First, there could be manipulation: are there traders in the
market — oil companies or hedge funds, perhaps — with so much market power that
they can dictate prices? The federal regulator, the Commodity Futures Trading
Commission (CFTC), monitors markets and has not found evidence that anyone is
manipulating prices. The CFTC has announced that investigations are in progress,
but generally manipulations in commodities markets cause short-lived price spikes,
not the kind of multi-year bull market that has been observed in oil prices since 2002.
Absent manipulation, the futures markets could set prices too high if a
speculative bubble were underway, similar to what happened during the dot-com
stock episode. If traders believe that the current price is too low, and take positions
accordingly, the price will rise. Eventually, however, prices should return to
fundamental values, perhaps with a sharp correction.
One area of concern is the increased participation in commodity markets of
institutional investors, such as pension funds, foundations, and endowments. Many
institutions have chosen to allocate a small part of their portfolio to commodities,
often in the form of an investment or contract that tracks a published commodity
price index, hoping to increase their returns and diversify portfolio risk. While these
decisions may be rational from each individual institution’s perspective, the
collective result is said to be an inflow of money out of proportion to the amounts
traditionally traded in commodities, with the effect of driving prices artificially high.
This report summarizes the numerous legislative proposals for controlling
excessive speculation, including H.R. 6604 and S. 3268, which received floor action
in their respective chambers in July 2008. It will be updated as events warrant.

Contents
Overview ........................................................1
Legislative Proposals: Closing Loopholes...............................3
The Enron Loophole...........................................3
The London Loophole..........................................5
The Swaps Loophole...........................................7
Other Legislative Approaches....................................9
Raising Margins...........................................9
Increasing CFTC Resources..................................9
Emergency Actions........................................9
Studies of the Market......................................10
Appendix. Mechanics of Futures Contracts.............................35
List of Tables
Table 1. Summaries of Energy Futures and Speculation Bills..............11
Table 2. Comparison of H.R. 6604 and S. 3268.........................29

Speculation and Energy Prices:
Legislative Responses
Overview
Are oil speculators the messengers bearing bad news, or are they themselves the
bad news? The Commodity Futures Trading Commission (CFTC), which regulates
speculative trading in energy commodities, has found no evidence that prices are not
being set by the economic fundamentals of supply and demand. Many analysts agree,
arguing that long-term supply growth will have difficulty keeping up with demand.
Others, however, believe that changes in the fundamentals do not justify recent
increases in energy prices, and seek the cause for soaring prices in the futures and
derivatives markets, which are used by financial speculators as well as producers and
commercial users of energy commodities.
The energy futures markets, which date from the 1980s, involve two kinds of
traders. Hedgers — producers or commercial users of commodities — trade in
futures to offset price risk. They can use the markets to lock in today’s price for
transactions that will occur in the future, shielding their businesses from unfavorable¹
price changes. Most trading, however, is done by speculators seeking to profit by
forecasting price trends. Together, the trading decisions of hedgers and speculators
determine commodity prices: there is no better mechanism available for determining
prices that will clear markets and ensure efficient allocation of resources than a
competitive market where hedgers and speculators pool information and trade on
their expectations of future prices.
Since many transactions in the physical markets take place at prices generated
by the futures markets, speculators clearly play a large part in setting energy prices.
In theory, this should not drive prices away from the fundamental levels: if financial
speculators trade on faulty assumptions about supply and demand, other traders with
superior information — including those who deal in the physical commodities —
should be able to profit at their expense. In other words, there is no reason why
speculation in and of itself should cause prices to be artificially high.
Theory says increased speculation should produce more efficient pricing. In
practice, however, some observers, including oil company CEOs, OPEC ministers,
and investment bank analysts, now speak of a “speculative premium” in the price of
oil. This view implies that without speculation, prices could fall significantly
without disrupting current patterns of consumption and production. How could the
price discovery function of the energy derivatives market have broken?

¹ See the Appendix for a description of the mechanics of a futures contract.

Several explanations are possible. First, the market could be manipulated. Price
manipulation, which is illegal under the Commodity Exchange Act, involves
deliberate strategies by a trader or group of traders to push prices to artificial levels.
Since derivatives markets reward correct predictions about future prices,
manipulation can be very profitable. Most manipulations in the past have involved
short-lived price spikes, brought about by spreading false information, or concerted
buying or selling. Since 2002, the CFTC has brought 40 enforcement cases involving
manipulation, but these usually have involved attempts to generate short-term price
spikes, which may be very profitable for the manipulators, but do not appear to
explain the long-term energy price trends observed in recent years.
It is rare, but possible, for a market to be rigged over a longer period of time
when a single trader or group amasses a dominant position in both physical supplies
and futures contracts and obtains enough market power to dictate prices. Examples
include the Hunt brothers’ attempt to corner the silver market in 1979-1980 and the
manipulation of the copper market by Yasuo Hamanaka of Sumitomo in the mid-
1990s. The CFTC has not produced any evidence that such a grand-scale
manipulation of energy prices is underway and has testified before Congress
repeatedly that prices are being set competitively.
In the absence of manipulation, another explanation for prices above
fundamental levels is a speculative bubble. If, as was the case in the dot-com stock
boom, a majority of traders become convinced that a “new era” of value has arrived,
they may bid up prices sharply in defiance of counter-arguments based on
fundamentals. Eventually, prices return to fundamental levels, often with a sudden
plunge. This is what many forecast for energy prices, including George Soros,
perhaps the best known speculator of the day.²
The bubble explanation is the same as the speculative premium argument. If
market participants are trading on mistaken ideas about the fundamentals, they may
set a price that is above the true price (which is the current market price minus the
speculative premium). However, there is no sure method for determining what the
true price is; the only observable price is the one the market generates.
Policy options to discourage speculation driven by irrational exuberance are
limited.³ Actions to reduce the amount of speculative trading, such as increasing the
margin requirements on futures contracts or restricting access to the markets, may not
produce the desired outcome. Higher margins raise trading costs, which should
reduce trading volumes, but the final effect on prices is uncertain. Empirical studies

² Soros, however, argues that an energy “bust” may be forestalled by new regulation on
commodity index speculation by institutional investors. Testimony of George Soros before
the Senate Commerce Committee, June 3, 2008, available at [http://commerce.senate.gov/
public/_files/SorosFinalTestimony.pdf].
³ See CRS Report RL33666, Asset Bubbles: Economic Effects and Policy Options for the
Federal Reserve, by Marc Labonte.

have not found a link between higher margins and lower price volatility, or any
evidence that would suggest that prices would fall.⁴
Apart from the possibility that traders in general are getting the price wrong,
there is an argument that prices have been driven up by a change in the composition
of traders. In recent years, institutional investors — like pension funds, endowments,
and foundations — have increasingly chosen to allocate part of their portfolios to
commodities. This is rational from the point of view of the individual fund, as it may
increase investment returns and diversify portfolio risks; but when many institutions
follow the same strategy at the same time, the effect can be that of a bubble. A
number of bills are aimed at reducing the incidence or impact of institutional
investment on the energy markets. These, and other proposals to improve the
regulation of derivatives markets, are summarized below.
Legislative Proposals: Closing Loopholes
Legislative approaches to ensuring that commodity prices are not manipulated
or distorted by excessive speculation focus on (1) extending regulatory control to
previously unregulated markets, (2) ensuring that speculators cannot use foreign
futures markets to avoid U.S. regulation, and (3) restraining the ability of institutional
investors (and others who do not deal in the physical commodities themselves) to
take large positions in commodities. These three areas are known respectively as the
“Enron loophole,” the “London loophole,” and the “swaps loophole.”
The Enron Loophole
The “Enron loophole” refers to a range of transactions that occur off the
regulated futures exchanges, in an “over-the-counter” (OTC) market where the
CFTC has had little regulatory jurisdiction, and from which it does not receive
comprehensive information about who is trading, in what volumes, and at what price.
The Commodity Futures Modernization Act of 2000 (CFMA, P.L. 106-554)
created a statutory exemption from CFTC regulation for certain contracts based on
“exempt commodities,” defined in the legislation as commodities that are neither⁵
agricultural nor financial. Two types of energy derivative markets were thereby
exempted: (1) bilateral, negotiated transactions between two counterparties that are⁶
not executed on a trading facility, and (2) trades done on an “electronic trading

⁴ Some argue, in fact, that higher margins might actually drive prices higher, since many
long speculative positions are currently held by large institutional investors who would have
no trouble meeting any margin demand. (See the appendix for a discussion of how margin
works.)
⁵ See CRS Report RS21401, Regulation of Energy Derivatives, by Mark Jickling, for
information on the CFMA.
⁶ The term “trading facility” is defined in the Commodity Exchange Act as a person or group
of persons that constitutes, maintains, or provides a physical or electronic facility or system
(continued...)

facility.” The CFMA specified that these markets must not be accessible to small
investors; all traders must be “eligible contract participants” (financial institutions,
units of government, or businesses or individuals with substantial financial assets)
or, in the case of the electronic trading facility exemption, “eligible commercial
entities” (eligible contract participants who either deal in the physical commodity or
regularly provide risk management services to those who do).
A substantial volume of over-the-counter energy trading makes use of these
exemptions. There is a large market in energy swaps, where investment banks like
Goldman Sachs and Morgan Stanley offer contracts linked to energy prices. The
OTC market in swaps has also evolved towards an exchange model, where contracts
are traded rapidly over an electronic network, and may be backed by a clearing house.
The best known of these electronic trading facilities is operated by Intercontinental
Exchange Inc. (ICE).⁷ The ICE over-the-counter market handles a volume of natural
gas contracts roughly equal in size to that handled by Nymex, the largest energy
futures exchange.
A Government Accountability Office report in October 2007 noted the growth
of the OTC market and raised questions about whether the federal regulator had the
information it needed to ensure that markets were free of fraud and manipulation.⁸
In the same month, the CFTC issued a report recommending legislative action to
increase the transparency of energy markets.⁹
In May 2008, with the Farm Bill (H.R. 2419, P.L. 110-234), Congress passed
legislation that generally follows the CFTC’s recommendations and potentially
brings part of the OTC market under CFTC regulation. The new law affects
electronic trading facilities handling contracts in exempt commodities (primarily
energy or metals). If the CFTC determines that a contract traded on such a facility
plays a significant price discovery role, that is, if the prices it generates are used as
reference points for other transactions and markets, the facility will come under
CFTC regulation. The market will have to register with the CFTC and demonstrate
its capacity to comply with several core principles. The principles and requirements
include maintaining and enforcing rules against manipulation, establishing position
limits or accountability levels to prevent excessive speculation, and providing the
CFTC with daily reports on large traders’ positions.

⁶ (...continued)
in which multiple participants have the ability to execute or trade agreements, contracts, or
transactions by accepting bids and offers made by other participants that are open to
multiple participants in the facility or system.
⁷ ICE is a publicly traded firm, based in Atlanta, that also owns the largest regulated energy
futures market in Europe, ICE Futures Europe (formerly the International Petroleum
Exchange, located in London).
⁸ U.S. Government Accountability Office, Trends in Energy Derivatives Markets Raise
Questions about CFTC’s Oversight, GAO 08-25, October 2007, 83 p.
⁹ U.S. Commodity Futures Trading Commission, Report on the Oversight of Trading on
Regulated Futures Exchanges and Exempt Commercial Markets, October 2007, 23 p.

The provisions of the Farm Bill, however, do not affect the unregulated status
of energy contracts that are not entered into on a trading facility, in other words, the
swap market in exempt commodities. Thus, the argument is made that the Enron
loophole has been only partially closed. A number of bills propose to end the
statutory exemption for OTC energy trades altogether, by putting energy commodities
on the same regulatory basis as agricultural commodities. Under current law,
derivatives contracts based on farm commodities may only be traded on a regulated
exchange, unless the CFTC issues an exemption.¹⁰ The CFTC is authorized to grant
such exemptions on a case-by-case basis, after determining that the contract would
not be against the public interest.
Other bills, including H.R. 6244 and S. 3268, would authorize the CFTC to
impose reporting requirements and position limits on energy swap markets.
The London Loophole
Unlike the Enron loophole, which addresses the distinction between the
regulated exchange markets and the unregulated OTC market, the “London loophole”
refers to differences in the oversight of regulated markets in different countries. The
U.K. counterpart to Nymex, the leading U.S. energy futures market, is ICE Futures
Europe, which is regulated in the U.K. by the Financial Services Authority (FSA).¹¹
For several years, the U.K. exchange has been offering energy futures contracts
in the United States, via electronic terminals. Ordinarily, an exchange offering
futures contracts to U.S. investors is required to register with the CFTC as a
“designated contract market,” and to comply with all applicable laws and regulations.
However, in the case of ICE Futures Europe, the CFTC has waived that requirement,
by means of a series of no-action letters, on the grounds that the U.K. market is
already regulated at home, and that requiring it to register with the CFTC would be
duplicative and add little in terms of market or customer protections.¹²
Initially, the U.K. market offered electronic access to U.S. traders to its most
popular contract, a futures contract based on the price of Brent Crude oil, produced
in the North Sea. After the market was acquired by ICE, however, it introduced a
“look-alike” contract that was identical to Nymex’s West Texas Intermediate crude
oil future. This contract, which could be settled by making or taking delivery of
physical crude oil in the United States, now trades in significant volumes —
transactions that would presumably take place on the Nymex otherwise.¹³

¹⁰ Exemptive authority is provided by section 4(c) of the Commodity Exchange Act.
¹¹ The parent company of ICE Futures, IntercontinentalExchange, Inc., is a publicly-traded
U.S. firm, based in Atlanta.
¹² The first no-action letter was issued in 1999, when the market was known as the
International Petroleum Exchange. When the IPE was acquired by ICE (a U.S. firm), in

2001, the waiver continued, and was modified several times.

¹³ In 2007, Nymex traded 121.5 million WTI futures contracts, while ICE Futures Europe
traded 51.4 million. “Volume Surges Again,” Futures Industry Magazine, March/April
(continued...)

With concern over high and volatile energy prices, there has been more scrutiny
of ICE Futures Europe’s activities in the United States. Can traders avoid speculative
position limits by trading on ICE, in addition to (or instead of) Nymex? Does the
CFTC receive the same information from ICE Futures Europe about large trading
positions that could be a source of manipulation or instability (if they were liquidated
suddenly)?
A number of bills propose to close the London loophole, either by requiring
foreign boards of trades (exchanges) to comply with all U.S. registration and
regulatory requirements if they offer contracts that can be settled by physical delivery
within the United States, or by making CFTC relief from such requirements and
regulation contingent upon a finding that (1) it will receive from the foreign market
information that is comparable or identical to what it receives from domestic
exchanges and (2) the foreign market is subject to a regulatory regime that is
comparable to the CFTC’s.
In the case of ICE Futures Europe, the CFTC announced that it had amended the
“no-action relief letter” under which ICE Futures Europe is permitted direct access
to U.S. customers. The amended letter conditions direct access on ICE Futures
Europe’s adoption of equivalent U.S. position limits and accountability levels on its
West Texas Intermediate crude oil contract, which is linked to the New York
Mercantile Exchange crude oil contract.¹⁴ This agreement complements a 2006
memorandum of understanding with the FSA providing for sharing of trading
information.¹⁵
The CFTC’s agreement with ICE appears to fulfill the purposes of several of the
bills, but only with respect to the London market. The CFTC has issued other no-
action letters granting regulatory waivers to foreign markets, including the Dubai
Mercantile Exchange (a joint venture with Nymex), permitting it to offer contracts
in the United States (to be cleared by Nymex). On July 7, 2008, the CFTC
announced that it would modify the no-action letter to the Dubai exchange on terms
similar to the agreement with ICE Futures Europe.¹⁶

¹³ (...continued)

2008, p. 23.

¹⁴ U.S. Commodity Futures Trading Commission, “CFTC Conditions Foreign Access on
Adoption of Position Limits on London Crude Oil Contract,” Release 5511-08, June 17,

2008.

¹⁵ Online at [http://www.cftc.gov/newsroom/generalpressreleases/2006/pr5259-06.html].
¹⁶ U.S. Commodity Futures Trading Commission, “CFTC Grants Relief to NYMEX in
Connection with Clearing Contracts Traded on the Dubai Mercantile Exchange DME
Trading System to be Available in U.S.,” Release 5339-07, May 25, 2007; and “CFTC
Grants Exemption to NYMEX in Connection with Three New Contracts to be Traded on the
Dubai Mercantile Exchange,” Release 5495-08, May 1, 2008.

The Swaps Loophole
The view that excessive speculation is driving up energy prices is widely held,
but controversial. The question of whether current prices are justified by
fundamental factors of supply and demand, or whether irrational exuberance has
created a bubble in energy prices (similar to what was observed in dot-com stocks in
the late 1990s), is beyond the scope of this report. However, testimony presented to
Congress has identified a recent trend in financial markets that some argue may be
putting upward pressure on prices: decisions by institutional investors, such as
pension funds, foundations, or endowments, to allocate a part of their portfolio to
commodities.¹⁷
From the point of view of a fund manager, investment in commodities may be
very attractive under current market conditions. Average returns on stocks and bonds
have been relatively low for the past few years, and there is little optimism that they
will improve in the near term. Commodities, on the other hand have been the “hot
sector.” While commodity investment is recognized as being highly risky, a risky
asset in a large, diversified portfolio does not necessarily increase overall portfolio
risk. The risk of a downturn in commodity prices is not generally correlated with
risks in stocks or bonds; in some cases, there may be an inverse relationship. For
example, if the price of oil drops suddenly, an institution may lose money on its
commodity investment, but the price change will be good for its transportation
stocks.
Institutional investors may take positions in commodities in a number of ways,
but they do not generally trade on the futures exchanges directly. Instead, they use
an intermediary, such as a commodity index fund or an OTC swap contract that is
structured to match the return of a published index of commodity prices.¹⁸ As a
result of this investment strategy, institutional investors in commodities are often
called “index traders.”
While the decision of an individual pension fund to put 3%-4% of its portfolio
in commodities may appear entirely rational, some observers argue that the aggregate
impact of institutional index trading has been to overwhelm the commodity markets,
because of the disproportion between the amount of money held by pension funds,
foundations, and other institutions and the amounts that have traditionally been
traded in the energy futures market. In other words, index investing is seen as
excessive speculation. One particular feature of index trading is the focus of several
legislative proposals: the “swaps loophole.”

¹⁷ Testimony of Michael W. Masters before the Senate Committee on Homeland Security
and Governmental Affairs, May 20, 2008, available at [http://hsgac.senate.gov/public/_files/

052008Masters.pdf].

¹⁸ Examples of such indices are the Dow Jones-AIG Commodity Index, or the Goldman
Sachs Commodity Index, which are variously weighted among farm products, energy
commodities, and metals. A swap contract is a derivative economically equivalent to a
futures contract: two parties agree to exchange payments over the life of a contract that are
linked to a price, index, or other variable. Depending on which way the underlying variable
moves, the net cash flow will be positive for one counterparty, and negative for the other.

The CFTC and the exchanges maintain position limits or accountability levels
that apply to speculative traders. Speculators either face a ceiling on the number of
contracts they may own, or, if they breach a position accountability level, they must
explain to the exchange why they are accumulating such a large position. The
purpose of the speculative limits is to prevent manipulation by speculators with very
large positions, and to limit the market impact in cases where losses force speculators
to liquidate their positions suddenly.
Hedgers, those who use the futures markets to offset price risk arising from their
dealings in the underlying commodity, are generally exempt from position limits.
Hedgers are allowed to take futures positions of any size, provided those positions
are commensurate with their commercial interests. The rationale for exempting them
from position limits is that when they have a hedged position, they have no incentive
to manipulate the market: any gains in their futures position will be offset by losses
in their physical transactions, and vice versa. (They use the futures markets to lock
in today’s price, meaning that subsequent price changes do not affect them.)
Traditionally, hedgers have been thought of as those who are active in the
physical commodity market; in the energy market, these would be oil producers,
refiners, transporters, and industrial users such as airlines and utilities. With the rise
of index trading, however, the definition of hedger has broadened. Both the CFTC
and Nymex now extend exemptions from speculative position limits to swaps dealers
who are using the futures exchanges to hedge price risk arising from a financial
contract with an institutional investor.
In other words, a pension fund wishing to invest in commodities may go to a
swaps dealer¹⁹ and enter into a contract that will pay returns equal to the percentage
increase in an index of commodity prices. In economic terms, this is equivalent to
a long position in futures, which will gain value if the underlying commodity price
rises. The swap dealer has, in effect, taken the short side of the trade: it will lose
money if prices rise.
The swap dealer is exposed to price risk, and may wish to offset that risk by
purchasing exchange-traded futures contracts. Because the dealer is using the futures
market to hedge the risk of the swap, the exchanges and the CFTC exempt it from
position limits, even though it does not deal in the physical commodity. The
rationale is the same as for traditional hedgers: since the swap dealer will gain on its
futures position whatever it loses on the swap, and vice versa, it has no incentive to
manipulate futures prices.
The effect of this “swaps loophole,” however, is to permit the ultimate
customers — the institutional investors who are clearly speculating on commodity
prices — to take larger positions than they would be able to do if they traded directly
on the futures exchanges, where they might be constrained by speculative position
limits. Hence the description of institutional investors’ index trading as excessive
speculation.

¹⁹ The major swap dealers in energy markets are investment banks like Goldman Sachs and
Morgan Stanley.

A number of bills propose to constrain the ability of institutional investors to use
the swaps loophole. They would limit the definitions of “bona fide hedger” or
“legitimate hedge trader” to those who deal in the physical commodity, or they would
prohibit trading in OTC energy contracts by those who do not deal in the physical
commodity.
Other Legislative Approaches
Raising Margins. Three bills (H.R. 2991, S. 3044, and S. 3183) call for the
CFTC to raise margins on oil futures. The margin requirement is the minimum
amount of money per futures contract that traders must deposit with their brokers.
Margin requirements are set by the exchanges, and are intended to cover losses. At
the end of each day, the exchange credits or debits every trader’s margin account with
the amount of gains or losses. Traders whose margin accounts fall below the
minimum requirement will be required to post additional margin before the market
opens next day, or their positions may be closed out at a loss.
The exchanges tend to raise margins during periods of price volatility, when the
probability of large price swings increases the risk of loss. Nymex has raised the
initial margin requirement for crude oil futures contracts (each of which represents

1,000 barrels of oil) several times in 2008.²⁰

Since everyone in futures markets trades on margin,²¹ raising margins means
higher trading costs, which should cause some traders to reduce the size of their
positions and reduce trading volume overall. However, as noted above, there is no
empirical evidence that higher margins dampen price volatility, making the effect on
price uncertain.
Increasing CFTC Resources. Several bills call for supplemental
appropriations to permit the CFTC to hire 100 new employees to monitor the energy
or agricultural derivatives markets.
Emergency Actions. H.R. 6377, passed by the House on June 26, 2008, and
other bills direct the CFTC to use its existing powers, including its emergency
authority, to curb immediately the role of excessive speculation in energy and to
eliminate price distortion, unreasonable or unwarranted price fluctuations, or any
unlawful activities that prevent the market from accurately reflecting the forces of
supply and demand for energy. (CFTC’s emergency authority includes the power to
change margin levels or order the liquidation of trading positions.)

²⁰ At the end of 2007, the crude oil margin requirement was $7,088; on July 1, 2008, it was
raised to $12,488 (for contracts expiring in 2008). (Both figures are for customers; margin
requirements for exchange members are slightly lower.)
²¹ This is unlike the stock market, where margin refers to loans extended to buy stock (and
collateralized by the purchased securities). Relatively few stock purchases are made on
margin.

Studies of the Market. A number of bills call for studies of various aspects
of the market, including the effects of raising margin, the adequacy of international
regulation, the effects of speculation, and the impact of index trading on prices.
Table 1 below provides summaries of all legislation that bears on the regulation
of energy speculation. Table 2 provides a more detailed comparison of H.R. 6604
and S. 3268, two bills that were brought to the floor in their respective chambers in
July 2008 but failed on procedural votes.

CRS-11
Table 1. Summaries of Energy Futures and Speculation Bills
Bill Number/SponsorStatusSummary
H.Res. 1278 Referred to theExpresses the sense of the House that the United States should lead an international diplomatic
(Rep. Petri)Committee oninitiative to limit inefficient speculation on international energy exchanges through the adoption of
Foreign Affairsinternational standards for energy futures trading margin requirements as an appropriate means of
ensuring access to reliable and affordable supplies of crude oil.
H.Res. 1289 Referred to theUrges the CFTC to require institutional investors to abide by position limits already established for
(Rep. Shays)House Committeethe greater crude oil trading community, and
on Agricultureurges the President to direct the CFTC to work with the United Kingdom Financial Services
Authority to establish position limits on oil futures traded on the Intercontinental Exchange that are
similar to those that apply to traders on the New York Mercantile Exchange.
ⁱ^{ki/CRS-RL34555}
^g/wH.R. 594 Referred to HousePrevent Unfair Manipulation of Prices Act of 2007. Creates a new regulatory category, “included
^s^.or(Rep. Stupak)Subcommittee onenergy transactions,” encompassing over-the-counter transactions in energy derivatives that play a
^le^akGeneral Farmsignificant role in determining prices paid in the cash market for the underlying commodities. Sets
Commodities andforth reporting and recordkeeping requirements for included energy transactions, requiring that
^://wikiRisk Managementcertain information about price and trading volumes (as well as other information the CFTC needs
^h^ttpto prevent and detect price manipulation) be made available to regulators and/or the public.
Clarifies prohibitions against commodity fraud and manipulation, and increases civil and criminal
penalties for violations.

CRS-12
Bill Number/SponsorStatusSummary
H.R. 2419 P.L. 110-234Food Conservation and Energy Act of 2008 (the Farm Bill). Title XIII included provisions
(Rep. Peterson)enacted May 22,reauthorizing the CFTC and creates a new regulatory regime for certain OTC energy derivatives
2008, over themarkets, subjecting them to a number of exchange-like regulations. The provisions apply to
President’s veto“electronic trading facilities” — markets where multiple buyers and sellers are able to post orders
and execute transactions over an electronic network. If the CFTC determines that a contract traded
on these markets, previously exempt from most regulation, plays a significant role in setting the
price of the underlying commodity, they will be required to register with the CFTC and comply with
several regulatory core principles aimed at curbing manipulation and excessive speculation
(including the establishment and enforcement of position limits). They will be required to publish
and/or report to the CFTC information relating to prices, trading volume, and size of positions held
by speculators and hedgers.
ⁱ^{ki/CRS-RL34555}These new regulatory requirements apply only to electronic markets that have come to resemble the
^g/wregulated futures exchanges. Bilateral OTC derivative contracts between two principals (e.g.,
^s^.orbetween a swap dealer and an institutional investor), that are not executed on a trading facility
^le^akwhere multiple bids and offers are displayed, will continue to be largely exempt from CFTC
regulation.
^://wiki
^h^ttpH.R. 3009 Referred to House Market Transparency Reporting of United States Transactions Act of 2007. Imposes reporting
(Rep. Barrow)Subcommittee onrequirements on OTC contracts in natural gas. The information to be disclosed shall be sufficient to
General Farmenable the CFTC to assess the overall trading activities, potential market power, and concentration
Commodities andof positions held by the largest traders. The CFTC shall publish a report setting out the information
Risk Managementreceived, in aggregate form.

CRS-13
Bill Number/SponsorStatusSummary
H.R. 4066 Referred to HouseClose the Enron Loophole Act. Defines a new regulated entity — “energy trading facility” — an
(Rep. Welch)Committee onOTC market that plays a significant role in price discovery. Requires energy trading facilities
Agriculture(ETFs) to register with the CFTC, and sets out criteria for registration, including the capacity to
monitor trading to prevent manipulation and excessive speculation. ETFs must also establish and
enforce speculative position limits that are comparable to the limits that apply to regulated futures
exchanges, and must publish data on trading volumes and prices.
Also imposes reporting and recordkeeping requirements on transactions on foreign futures
exchanges that involve delivery of energy commodities within the United States, where such
transactions are executed on terminals located in the U.S.
H.R. 6130 Referred to theCalls for an interagency study of the effects of speculation in the futures markets (including foreign
ⁱ^{ki/CRS-RL34555}(Rep. Barton)Committee onfutures markets) for natural gas, crude oil, and gasoline on cash market and retail prices for the
^g/wAgriculture, and incommodities.
^s^.oraddition to the
^le^akCommittee onDirects the CFTC to issue a regulation setting out how it determines whether futures and derivatives
Energy andregulation in a foreign country is comparable to U.S. regulation of those markets.
^://wikiC o mme r c e
^h^ttp
H.R. 6238Referred to theDirects the Secretary of Energy to establish an interagency working group to study the impact of
(Rep. Dingell)House Committeemarket speculation and manipulation on the price of crude oil and refined petroleum products and
on Energy andthe international regulation of trading markets. The working group shall issue a report within one
Commerceyear, and shall make recommendations for legislative or regulatory action at any time if needed to
protect U.S. energy consumers from the potential for abuse and manipulation by activities taking
place in energy markets or exchanges.
H.R. 6264 Referred to theLimits over-the-counter derivative transactions in energy commodities (defined as crude oil, heating
(Rep. Larson)House Committeeoil, gasoline, or diesel fuel) to persons whom the CFTC has certified as having the capacity to
on Agricultureproduce, manufacture, or accept physical delivery of the commodity.

CRS-14
Bill Number/SponsorStatusSummary
H.R. 6279 Referred to theOil Speculation Reduction Act of 2008. Prohibits the CFTC from exempting from U.S. regulation a
(Rep. Chabot)House Committeeforeign board of trade that offers contracts in crude oil to be physically delivered in the United
on AgricultureStates, unless (1) the foreign market applies principles or requirements daily publication of trading
information and position limits or accountability levels for speculators that are comparable to those
applied by U.S. exchanges, (2) provides the CFTC with information about large trading positions
comparable to what the CFTC receives from U.S. markets, and (3) imposes margin requirements
that are comparable to those in U.S. markets and sufficient to reduce excessive speculation and
protect consumers.
CFTC shall, within 18 months of enactment, review waivers of regulation already extended to
foreign exchanges, and shall report to Congress within 12 months on the implementation of this act.
ⁱ^{ki/CRS-RL34555}H.R. 6284 Referred to theAuthorizes the CFTC to apply anti-manipulation and certain other provisions of the Commodity
^g/w(Rep. Matheson)House CommitteeExchange Act to persons located in the United States trading on foreign futures exchanges, and to
^s^.oron Agriculturerequire such person to limit, reduce, or liquidate any position to prevent or reduce the threat of price
^le^akmanipulation, excessive speculation, price distortion, or disruption of delivery or the cash settlement
process.
^://wiki
^h^ttpLimits the CFTC’s authority to exempt foreign futures markets that offer contracts based on “an
energy commodity that is physically delivered in the United States” from U.S. regulation. Before
granting such relief from regulation, CFTC must determine that the foreign market applies
principles regarding the publication of trading information and position limits or accountability
levels for speculators that are comparable to U.S. law and regulation, and that the CFTC receives
from the foreign market the same information regarding large trader positions that it receives from
U.S. exchanges. Requires the CFTC to reevaluate within 18 months any foreign markets to which it
has previously granted relief from U.S. registration requirements.

CRS-15
Bill Number/SponsorStatusSummary
H.R. 6330 Referred to thePrevent Unfair Manipulation of Prices Act of 2008. Specifies that “energy commodities” (as
(Rep. Stupak)Committee ondefined) are not exempt commodities. As a result, trading in OTC contracts in energy commodities
Agriculture, and towould not be exempted from regulation by statute, but would require CFTC approval on a case-by-
the Committee oncase basis, which could be granted only after 60-day notification to Congress and a public comment
Energy andperiod. Bilateral OTC energy contracts (not executed on a trading facility) would be subject to
Commercereporting and recordkeeping requirements.
Foreign futures markets offering contracts in the United States, with a delivery point in the United
States, would be subject to U.S. regulation.
The definition of “bona fide hedger” would exclude those hedging price risk arising from energy
swaps. The CFTC would be required to publish certain information about trading strategies that
ⁱ^{ki/CRS-RL34555}track commodity price indexes, including the size of positions and the total value of index
^g/w speculation.
^s^.or
^le^akProvides FERC with cease-and-desist authority to freeze the assets of companies prosecuted under
its anti-manipulation authority.
^://wiki
^h^ttpH.R. 6334 Referred to theExpresses the sense of the House that the President should request emergency appropriations for the
(Rep. Etheridge)House CommitteeCFTC in FY2008, in order to hire 100 additional employees to monitor and improve enforcement in
on Agricultureenergy markets.
Directs the CFTC, before granting relief from U.S. registration and regulatory requirements to any
foreign market offering contracts involving delivery of energy commodities in the United States, to
determine that the foreign market applies regulations regarding publication of trading data and
position limits that are comparable to U.S. regulations, and that the foreign market supplies the
CFTC with the same type of information about large speculative and hedging positions that the
CFTC now obtains from U.S. exchanges.
Directs the CFTC to publish monthly data on the positions of index funds (and other passive, long-
only positions) in energy markets, including the total amount of such investments and the size of
speculative positions compared to those of hedgers who deal in the physical commodities.

CRS-16
Bill Number/SponsorStatusSummary
H.R. 6341 Referred to theEnergy Markets Anti-Manipulation and Integrity Restoration Act . Removes “energy commodities”
(Rep. Van Hollen)House Committee(as defined) from the category of exempt commodities, thus ending the statutory exemption from
on AgricultureCFTC regulation for OTC energy contracts.
Specifies that a board of trade, exchange, or market shall not be considered to be foreign if it has a
trading affiliate or trading infrastructure located in the United States; and a contract of sale of an
energy commodity for future delivery in the United States, which is a significant price discovery
contract (as determined by the CFTC) for the energy commodity, is executed or traded on or through
the board of trade, exchange, or market.
H.R. 6349 Referred to theIncreasing Transparency and Accountability in Oil Prices Act of 2008. Expresses the sense of the
(Rep. J. Marshall)House CommitteeHouse that the President should request emergency appropriations for the CFTC, to fund 100 new
ⁱ^{ki/CRS-RL34555}on Agriculturepositions to oversee energy futures market speculation and help restore public confidence.
^g/wEstablishes the Office of Inspector General as an independent office within the CFTC.
^s^.or
^le^akCalls for a GAO study of international regulation of energy derivatives.
^://wikiLimits the CFTC’s authority to exempt foreign futures markets that offer contracts based on “an
^h^ttpenergy commodity that is physically delivered in the United States” from U.S. regulation. Before
granting such relief from regulation, CFTC must determine that the foreign market applies
principles regarding the publication of trading information and position limits or accountability
levels for speculators that are comparable to U.S. law and regulation, and that the CFTC receives
from the foreign market the same information regarding large trader positions that it receives from
U.S. exchanges. Requires the CFTC to reevaluate within 18 months any foreign markets to which it
has previously granted relief from U.S. registration requirements. Expands CFTC jurisdiction over
certain trades by U.S. persons executed on foreign markets.
Directs the CFTC to require detailed reporting from swaps dealers and index traders, and to review
index trading to ensure that it does not adversely impact the price discovery process. Requires the
CFTC to publish monthly data on the number and total of index funds and data on speculative
positions relative to bona fide physical hedger positions.

CRS-17
Bill Number/SponsorStatusSummary
H.R. 6372 Referred to theCommodity Futures Restoration Act. Removes energy commodities (as defined) from the class of
(Rep. Hill)House Committeeexempt commodities. Puts energy swaps on the same regulatory basis as agricultural commodity
on Agricultureswaps.
A futures exchange shall not be considered foreign if (1) it has an affiliate located in the United
States, (2) it trades a contract settled by delivery in the United States, or (3) it trades a significant
price discovery contract.
Exemptions from position limits for bona fide hedgers shall not apply to swaps involving energy
commodities.
Directs the CFTC to report to Congress within 90 days of enactment on margin levels and position
ⁱ^{ki/CRS-RL34555}limits applicable to energy commodities.
^g/w
^s^.orH.R. 6377 Passed the House,Energy Markets Emergency Act of 2008. Directs the CFTC to utilize all its authority, including its
^le^ak(Rep. Peterson)June 26, 2008emergency powers, to:
^://wiki(1) curb immediately the role of excessive speculation in any contract market within the jurisdiction
^h^ttpand control of the Commodity Futures Trading Commission, on or through which energy futures or
swaps are traded; and
(2) eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or
unwarranted changes in prices, or other unlawful activity that is causing major market disturbances
that prevent the market from accurately reflecting the forces of supply and demand for energy
commodities.

CRS-18
Bill Number/SponsorStatusSummary
H.R. 6604On motion toCommodity Markets Transparency and Accountability Act of 2008. The CFTC may not permit a
(Rep. Peterson)suspend the rulesforeign board of trade (futures exchange) to offer direct electronic access to its trading mechanism
and pass the bill, asto persons in the U.S., when the contract being traded settles against the price of a U.S. futures
amended, failed bycontract, unless the foreign market (1) publishes daily trading information comparable to what the
the yeas and nays:corresponding U.S. market makes public, (2) notifies the CFTC regarding any changes to certain
(2/3 required): 276 -disclosure and regulatory requirements, (3) adopts speculative position limits comparable to U.S.

151 (Roll no. 540). limits, (4) has the authority to require liquidation of positions to prevent manipulation, and (5)

provides the CFTC with information regarding the positions of bona fide hedgers and speculators.
Imposes reporting requirements on index traders and swap dealers, and requires CFTC to publish
aggregate figures on their trades and positions.
ⁱ^{ki/CRS-RL34555}Defines “bona fide hedging” in energy commodities as transactions where at least one counterparty
^g/whas price risk arising from physical dealings in an energy commodity.
^s^.or
^le^akDirects the CFTC to set position limits in energy and agricultural futures. Modifies a core
regulatory principle for futures exchanges to specify that position accountability levels may not be
^://wikisubstituted for position limits in agricultural or energy contracts.
^h^ttp
Directs the CFTC to hire 100 new employees to monitor energy markets.
Authorizes the CFTC to impose reporting requirements on OTC derivatives markets trading
contracts that are fungible with contracts traded in regulated markets. If the CFTC determines
(based on the information collected) that the OTC markets could be a source of manipulation or spot
market instability, it may impose position limits on the OTC energy markets.
H.R. 6647Referred to theEnergy Fraud and Fairness Reform Act. Directs the Federal Trade Commission to conduct an
(Rep. Ruppersberger)Committees oninvestigation to determine if the price of gasoline is being artificially manipulated by speculation in
Ways and Means,the oil markets and specifically at the Intercontinental Exchange in Atlanta, Georgia.

and Energy and
Commerce

CRS-19
Bill Number/SponsorStatusSummary
H.R. 6653Referred to theConsumer Energy Relief Act of 2008. In addition to various tax measures, Section 203 removes
(Rep. Schakowsky)Committee on Waysenergy commodities (as defined) from the category of exempt commodities.
and Means, and in
addition to theTitle IV prohibits the CFTC from exempting from U.S. regulation a foreign board of trade that
Committees onoffers contracts in energy commodities that can be settled by physical delivery in the United States,
Energy andunless (1) the foreign market applies comparable principles or requirements regarding the daily
Commerce,publication of trading information and position limits or accountability levels for speculators and (2)
Agriculture, and theprovides the CFTC with information about large trading positions comparable to what the CFTC
Judiciaryreceives from U.S. markets.
Directs the CFTC, within 90 days of enactment, to promulgate regulations to set increases in margin
levels for crude oil traded on any trading facility or as part of any agreement, contract, or transaction
ⁱ^{ki/CRS-RL34555}necessary to reduce excessive speculation and protect consumers. Calls for studies of the impact of
^g/whigher margin rates.
^s^.or
^le^akH.R. 6670Referred to theLong-Term Energy Assurance and Security Enhancement (LEASE) Act of 2008. In addition to
(Rep. Gene Green)Committee onprovisions dealing with drilling on the outer continental shelf, Title II directs the CFTC to use all its
^://wikiNatural Resources,authority, including its emergency powers, to curb immediately the role of excessive speculation in
^h^ttpand in addition toany contract market within the jurisdiction of the Commission, on or through which energy futures
the Committees onor swaps are traded; and eliminate excessive speculation, price distortion, sudden or unreasonable
Energy andfluctuations or unwarranted changes in prices, or other unlawful activity that is causing major
Commerce, Sciencemarket disturbances that prevent the market from accurately reflecting the forces of supply and
and Technology,demand for energy commodities.

Transportation and
Infrastructure,
Education and
Labor, and
Agriculture

CRS-20
Bill Number/SponsorStatusSummary
S. 577 Referred to theOil and Gas Traders Oversight Act of 2007. Amends the Commodity Exchange Act to prescribe
(Sen. Feinstein)Senate Committeereporting and recordkeeping requirements for positions involving energy commodities (a
on Agriculture,commodity or the derivatives of a commodity used primarily as a source of energy).
Nutrition, and
ForestryDirects the Commodity Futures Trading Commission to subject to the requirements of this act a
contract, agreement, or transaction for future delivery in an energy commodity.
S. 2058 Referred to theClose the Enron Loophole Act. Defines a new regulated entity — “energy trading facility” — an
(Sen. Levin)Senate CommitteeOTC market that plays a significant role in price discovery. Requires energy trading facilities
on Agriculture,(ETFs) to register with the CFTC, and sets out criteria for registration, including the capacity to
Nutrition, andmonitor trading to prevent manipulation and excessive speculation. ETFs must also establish and
Forestryenforce speculative position limits that are comparable to the limits that apply to regulated futures
ⁱ^{ki/CRS-RL34555}exchanges, and must publish data on trading volumes and prices.
^g/w
^s^.orAlso imposes reporting and recordkeeping requirements on transactions on foreign futures
^le^akexchanges that involve delivery of energy commodities within the United States, where such
transactions are executed on terminals located in the U.S.
^://wiki
^h^ttpS. 2991 Placed on SenateConsumer-First Energy Act of 2008 - Sec. 501 limits the CFTC’s authority to exempt foreign
(Sen. Reid)Legislativefutures markets that offer contracts based on “an energy commodity that is physically delivered in
Calendar underthe United States” from U.S. regulation. Before granting such relief from regulation, CFTC must
General Ordersdetermine that the foreign market applies principles regarding the publication of trading information
and position limits or accountability levels for speculators that are comparable to U.S. law and
regulation, and that the CFTC receives from the foreign market the same information regarding
large trader positions that it receives from U.S. exchanges. Requires the CFTC to reevaluate any
foreign markets to which it has previously granted relief from U.S. registration requirements.
Sec. 502 directs the CFTC to issue within 90 days of enactment regulations setting “ a substantial
increase in margin levels for crude oil traded on any trading facility” under CFTC’s jurisdiction.
Calls for CFTC and GAO to conduct separate studies on the impact of increases in margin
requirements.

CRS-21
Bill Number/SponsorStatusSummary
S. 2995 Referred to theOil Trading Transparency Act. Limits the CFTC’s authority to exempt foreign futures markets that
(Sen. Levin)Committee onoffer contracts based on “an energy commodity that is physically delivered in the United States”
Agriculture,from U.S. regulation. Before granting such relief from regulation, CFTC must determine that the
Nutrition, andforeign market applies principles regarding position limits or accountability levels for speculators
Forestryand publication of trading information that are comparable to U.S. law and regulation, and that the
CFTC receives from the foreign market the same information regarding large trader positions that it
receives from U.S. exchanges. Requires the CFTC to reevaluate any foreign markets to which it has
previously granted relief from U.S. registration requirements.
S. 3044 Motion to proceedConsumer-First Energy Act of 2008. Includes provisions related to foreign futures markets and an
(Sen. Reid)to measureincrease in oil futures margins identical to S. 2991.
considered in Senate
ⁱ^{ki/CRS-RL34555}S. 3081 Referred to theEstablishes a Petroleum Industry Antitrust Task Force within the Department of Justice to examine,
^g/w(Sen. Kerry)Committee on theamong other issues, the existence and effects of any anticompetitive manipulation in futures markets
^s^.orJudiciary or other trading exchanges relating to petroleum or petroleum products.
^le^ak
^://wikiS. 3122 (Sen. Cantwell)Referred to theSenate CommitteePolicing United States Oil Commodities Markets Act of 2008. Requires foreign markets “thatoperate trading terminals in the United States, on which are traded contracts that serve a price
^h^ttpon Agriculture,discovery function for any energy commodity that is delivered in the United States” to register with
Nutrition, andthe CFTC as designated contract markets (or regulated exchanges). Also applies to markets to
Forestrywhich CFTC has already granted relief from registration requirements.

CRS-22
Bill Number/SponsorStatusSummary
S. 3129 Referred to theClose the London Loophole Act of 2008. Authorizes the CFTC to apply anti-manipulation and
(Sen. Levin et al.)Committee oncertain other provisions of the Commodity Exchange Act to persons located in the United States
Agriculture,trading on foreign futures exchanges, and to require such person to limit, reduce, or liquidate any
Nutrition, andposition to prevent or reduce the threat of price manipulation, excessive speculation, price
Forestry distortion, or disruption of delivery or the cash settlement process.
Limits the CFTC’s authority to exempt foreign futures markets that offer contracts based on “an
energy commodity that is physically delivered in the United States” from U.S. regulation. Before
granting such relief from regulation, CFTC must determine that the foreign market applies
principles regarding the publication of trading information and position limits or accountability
levels for speculators that are comparable to U.S. law and regulation, and that the CFTC receives
from the foreign market the same information regarding large trader positions that it receives from
ⁱ^{ki/CRS-RL34555}U.S. exchanges. Requires the CFTC to reevaluate within 18 months any foreign markets to which it
^g/whas previously granted relief from U.S. registration requirements.
^s^.or
^le^akS. 3130 Referred to theIncreasing Transparency and Accountability in Oil Prices Act. Expresses the sense of the Senate
(Sen. Durbin)Committee onfavoring a supplemental appropriation to increase the CFTC’s resources, including the hiring of 100
^://wikiAgriculture,new employees to monitor energy futures markets. Establishes the Office of Inspector general as an
^h^ttpNutrition, andindependent office within the CFTC. Directs GAO to study the international regime for regulating
Forestrythe trading of energy commodity futures and derivatives.
Includes provisions related to foreign futures markets identical to S. 2991.

CRS-23
Bill Number/SponsorStatusSummary
S. 3131 Referred to theOil Speculation Control Act of 2008. Makes institutional investors who trade in energy contracts
(Sens. Feinstein andSenate Committeebut do not take or make physical delivery of energy commodities subject to speculative position
Stevens)on Agriculture,limits or accountability levels. Defines “bona fide hedging transactions” as those related to price
Nutrition, andrisk arising from physical energy transactions.
Forestry
Establishes the Office of Inspector general as an independent office within the CFTC.
Extends large trader reporting requirements to index traders, swap dealers, and institutional
investors. Directs the CFTC to review the trading practices of index traders, swap dealers, and
institutional investors in markets under CFTC jurisdiction to ensure that such practices are not
impeding the price discovery process, to gather information, and to assess the adequacy of current
regulation of such trading practices.
ⁱ^{ki/CRS-RL34555}
^g/wDirects the CFTC to use its emergency authority to impose a 60-day freeze to prevent institutional
^s^.orinvestors from increasing the size of their positions in energy commodity futures or commodity
^le^akfuture index funds.
^://wikiS. 3134Referred to theRemoves energy commodities (as defined) from the class of exempt commodities. Transactions in
^h^ttp(Sen. B. Nelson)Committee onenergy commodities will be subject to the same degree of regulation under the Commodity
Agriculture,Exchange Act as agricultural commodities. That is, there will no longer be a statutory exemption
Nutrition, andfor OTC energy trades.

Forestry

CRS-24
Bill Number/SponsorStatusSummary
S. 3183 Referred to theDirects the CFTC to use its authority to eliminate manipulation and speculation from the petroleum
(Sen. Dorgan)Committee onfutures market. Requires the CFTC to distinguish between “legitimate hedge trading” —
Agriculture,transactions involving commercial producers and consumers of physical petroleum products — and
Nutrition, andall other trades.
Forestry
Requires the CFTC to revoke or modify all prior actions or decisions, (including exemptions from
position limits for trading other than legitimate hedge trading) that prevent the CFTC from
protecting legitimate hedge trades and discouraging speculative trades.
Requires the CFTC to order an increase in petroleum futures margin requirements to at least 25%
for trades not classified as legitimate hedge trading.
ⁱ^{ki/CRS-RL34555}Requires the CFTC to convene an international working group of regulators to ensure the protection
^g/wof petroleum futures market from excessive speculation and world wide forum shopping.
^s^.or
^le^akS. 3185 Referred to theIdentical to H.R. 6330.

(Sen. Cantwell)Committee on
^://wikiAgriculture,
^h^ttpNutrition, and
Forestry

CRS-25
Bill Number/SponsorStatusSummary
S. 3202 Placed on SenateGas Price Reduction Act of 2008. (Title IV — Energy Commodity Markets.) Directs the President’s
(Sen. McConnell)LegislativeWorking Group on Financial Markets to study the international regulation of energy derivatives.
Calendar under
General Orders.Bars the CFTC from permitting direct access by U.S. investors to foreign futures markets trading
Calendar No. 854contracts that settle on prices of U.S. contracts, unless those markets (1) publish trading data
comparable to U.S. futures exchanges, (2) adopt position limits comparable to U.S. limits, and (3)
provide the CFTC with large trader reports comparable to what the CFTC receives from U.S.
markets.
Directs the CFTC to set reporting requirements for swap dealers and index traders, and to publish
monthly aggregate figures on index investing and other passive, long-only strategies in energy and
agricultural commodities.
ⁱ^{ki/CRS-RL34555}
^g/wDirects the CFTC to hire 100 new employees for monitoring and enforcement in energy markets,
^s^.orand authorizes appropriations for this purpose.
^le^ak
S. 3205 Referred to theA bill to direct the Commodity Futures Trading Commission to utilize all its authority, including its
^://wiki(Sen. Cantwell)Committee onemergency powers, to curb immediately the role of excessive speculation in any contract market
^h^ttpAgriculture,within the jurisdiction and control of the Commodity Futures Trading Commission, on or through
Nutrition, andwhich energy futures or swaps are traded, and to eliminate excessive speculation, price distortion,
Forestrysudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that
is causing major market disturbances that prevent the market from accurately reflecting the forces of
supply and demand for energy commodities.

CRS-26
Bill Number/SponsorStatusSummary
S. 3248Referred to theCommodity Speculation Reform Act of 2008. Prohibits the CFTC from issuing a no action letter to
(Sen. Lieberman)Committee ona foreign board of trade that lists a contract which settles on the price of a contract traded on a U.S.
Agriculture,futures market, unless that foreign board of trade provides information comparable to what the
Nutrition, andCFTC receives from U.S. markets.
Forestry
Directs the CFTC to hire 100 new employees to monitor energy trading, and authorizes
appropriations for that purpose.
Directs the CFTC to establish speculative position limits that apply to exchange-based and over-the-
counter trading in energy derivatives. Limits exemption from these position limits to bona fide
hedgers, defined as those hedging price risk arising from dealings in physical commodities.
ⁱ^{ki/CRS-RL34555}Directs the CFTC to study speculation in metals, and report on whether it needs new authority to
^g/wregulate those markets.
^s^.or
^le^akS. 3255 Referred to theOver-the-Counter Speculation Act. Directs the CFTC to impose reporting requirements on covered
(Sen. Levin)Committee ontraders in the over-the-counter contracts in energy commodities (defined in the bill). In case of a
^://wikiAgriculture,major market disturbance, authorizes the CFTC to impose trading limits on the over-the-counter
^h^ttpNutrition, andmarket or to order the liquidation of trading positions. In determining which OTC trades are subject
Forestryto reporting requirements, the CFTC is to consider the potential for manipulation of, or excessive
speculation in, any contract traded on a regulated market.
Directs the CFTC to establish a system for reporting certain large OTC transactions, especially those
that settle against an exchange contract or which are used a reference points for pricing other trades.

CRS-27
Bill Number/SponsorStatusSummary
S. 3268 Cloture motion onStop Excessive Energy Speculation Act of 2008. Prohibits the CFTC from allowing direct access
(Sen. Reid)the motion tofor U.S. market participants to energy contracts listed on foreign boards of trade that settle against a
proceed to theU.S. contract price, unless (1) the foreign board of trade publishes information about daily trading
measure presentedthat is comparable to what the linked U.S. market publishes; (2) notifies the CFTC of any changes in
in Senate, July 17,disclosure requirements, anti-manipulation regulations, or speculative position limits; (3) adopts
2008position limits comparable to those on the U.S. market; (4) has authority to order the reduction or
liquidation of trading positions; and (5) provides the CFTC with information on large positions held
by hedgers and speculators that is comparable to what the CFTC receives from U.S. markets.
Authorizes the CFTC to impose recordkeeping requirements on persons in the United States who
trade on foreign boards of trade via a direct electronic link. Establishes that violation by a U.S.
person of the speculative position limits of a foreign board of trade, in regard to a contract that
ⁱ^{ki/CRS-RL34555}settles against a U.S. contract, constitutes a violation of the Commodity Exchange Act.
^g/w
^s^.orDirects the CFTC to convene an international working group energy futures regulators, to ensure
^le^akthat markets are free from excessive speculation, non-legitimate hedge trading, manipulation,
location shopping, and lowest-common-denominator regulation.
^://wiki
^h^ttpDefines “legitimate hedge trading” as trades in energy contracts by commercial producers or
purchasers of physical energy commodities. Directs the CFTC to modify its regulations to ensure
that all trading is identified as either legitimate hedge trading or “any other type of trading.” Directs
the CFTC to impose speculative position limits on all trading that is not legitimate hedge trading
(including trading in the over-the-counter market), and to convene an advisory group to consider the
appropriate levels for such limits.

CRS-28
Bill Number/SponsorStatusSummary
Directs the CFTC to impose reporting requirements on covered traders in the over-the-counter
contracts in energy commodities (defined in the bill). In case of a major market disturbance,
authorizes the CFTC to impose trading limits on the over-the-counter market or to order the
liquidation of trading positions. In determining which OTC trades are covered, the CFTC is to
consider the potential for manipulation of, or excessive speculation in, any contract traded on a
regulated market.
Directs the CFTC to issue rules requiring detailed reporting from index traders and swap dealers,
and to review the practice of index trading to ensure that it does not adversely affect the price
discovery process. Directs the CFTC to issue monthly data on the number and total value of index
fund positions in energy, including a comparison of those and other speculative positions to the
positions of legitimate hedge traders.
ⁱ^{ki/CRS-RL34555}
^g/wDirects the CFTC to hire 100 additional employees to increase the transparency of the energy
^s^.orfutures markets, and for enforcement.
^le^ak
Creates a working group on energy markets, initially chaired by the Secretary of Energy, also
^://wikiincluding the Treasury Secretary, chairmen of FERC, the FTC, the SEC, the CFTC, and the EIA.
^h^ttpThe group shall study the impact of speculation on energy prices, make recommendations on how to
minimize the impact of high prices, and review energy security considerations related to
international energy markets.
Provides for information collection from energy companies regarding physical inventories, fixed
price commitments, storage capacity, and other matters.
Directs the Federal Energy Regulatory Commission (FERC) to investigate the role of financial
institutions in the natural gas market, and calls for GAO reports on the effects of speculation and
international regulation of energy markets.

CRS-29
Table 2. Comparison of H.R. 6604 and S. 3268
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
ⁱⁿ^itioⁿ^o^f^“^eⁿ^e^r^g^y^co^m^m^o^d^ity^”^A^p^e^tr^o^l^eu^m^p^r^o^d^u^{ct o}^rⁿ^a^tu^r^a^{l g}^a^{s. (}^S^ec.^C^o^{al, cru}^d^{e oil, g}^a^s^o^lin^{e, j}^e^{t f}^u^{el, h}^eatin^g^Defⁱⁿⁱⁿ^g^en^er^g^y^co^m^m^o^d^ities
²⁾^o^{il, p}^r^o^p^aⁿ^e^{, electr}ⁱ^city^{, n}^a^tu^r^a^{l g}^a^{s, an}^d^dⁱ^stⁱ^ngui^she^s^t^h^e^m^fr^o^m^o^t^he^r^“e^xe^m^p^t
^an^y^oth^e^{r s}^u^bs^tan^{ce u}^s^{ed as}^f^u^{el th}^{at th}^e^co^m^m^o^d^{ities,” su}^ch^{as m}^e^tals.
^C^F^T^C^deem^s^appropri^a^t^e^{. (S}^{ec. 3)}
^r^e^igⁿ^b^o^a^r^d^{s o}^f^tr^ad^e^T^h^e^CFT^C^m^a^yⁿ^o^{t p}^e^r^m^{it a f}^o^r^e^igⁿ^Iden^{tical prov}^is^ion^s^{, ex}^{cept f}^o^{r (5),}^T^h^es^{e prov}ⁱ^sⁱ^oⁿ^s^addres^s^t^h^{e “}^L^on^don
^{board of}^{trade (f}^u^t^u^r^es^ex^ch^an^g^e^{) to of}^f^e^r^w^h^{ere th}^{e requ}^irem^en^{t is}^th^{at th}^{e f}^o^reigⁿ^l^ooph^ol^e.”

^{direct electron}ⁱ^{c acces}^s^{to its}^tradin^g^m^a^rk^et^{or reg}^u^l^at^{or prov}ⁱ^d^{e t}^h^{e C}^F^T^C
ⁱ^{ki/CRS-RL34555}^m^ech^an^is^m^{to pers}^on^sⁱⁿ^th^{e U.S., w}^h^en^w^ithⁱⁿ^f^o^r^m^atioⁿⁿ^ecessar^y^to^p^u^b^lish
^g/w^th^{e co}ⁿ^t^r^{act b}^eⁱⁿ^g^tr^ad^ed^{settles ag}^ain^s^t^r^e^p^o^r^{ts o}ⁿ^ag^g^r^eg^{ate tr}^ad^er^p^o^s^itioⁿ^s^th^at
^s^.or^th^{e price of}^{a U.S. f}^u^tu^res^con^t^ract,^{are com}^p^{arable to s}^u^ch^reports^on
^le^ak^unl^e^{ss t}^h^e^fo^r^eⁱ^{gn m}^a^r^k^e^t⁽¹⁾^p^u^b^lⁱ^s^he^s^p^o^s^itioⁿ^sⁱⁿ^{U.S. m}^a^r^k^{ets. (}^S^{ec. 4}⁽^a)⁾
^d^a^ily^tr^adⁱⁿ^gⁱⁿ^f^o^r^m^atioⁿ^co^m^p^ar^ab^{le to}
^://wiki^w^h^{at th}^{e corres}^pon^din^g^{U.S. m}^a^rk^et
^h^ttp^m^a^k^e^{s p}^u^b^{lic, (}²⁾ⁿ^o^tif^{ies th}^{e CFT}^C^r^e^ga^r^dⁱ^{ng a}ⁿ^y^c^h^a^nge^{s t}^o^c^e^r^t^aⁱⁿ
^di^s^c^l^o^s^u^{re an}^{d reg}^u^l^at^ory^requⁱ^r^em^en^t^s^,
^{(3) adopts}^s^p^ecu^lativ^{e pos}^ition^lim^its
^co^m^p^ar^ab^{le to}^{U.S. lim}^{its, (}⁴⁾^h^a^{s th}^e
^au^th^o^r^ity^to^r^e^q^u^ir^{e liq}^uⁱ^d^a^tioⁿ^o^f
^p^o^s^itioⁿ^s^to^p^r^ev^en^{t m}^aⁿⁱ^p^u^latioⁿ^,^an^d
⁽⁵⁾^p^r^o^v^id^{es th}^{e CFT}^C^w^ithⁱⁿ^f^o^r^m^atioⁿ
^r^e^g^a^r^dⁱⁿ^g^th^{e ex}^ten^t^o^f^leg^itim^{ate an}^d
ⁿ^oⁿ^l^eg^itim^{ate h}^e^d^g^{e tr}^adⁱⁿ^gⁱⁿ^th^e
^coⁿ^t^r^{act th}^{at settles ag}^ain^s^{t a U.S.}
^con^t^{ract. (Sec. 3)}

CRS-30
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
^T^C^au^th^ority^ov^{er U.S. traders}^on^A^u^th^o^r^{izes th}^{e CFT}^C^to^im^p^o^s^e^A^pers^on^regⁱ^s^t^{ered w}^ith^th^{e C}^F^T^C^or
^r^eⁱ^{gn m}^a^r^k^e^t^s^recordk^eepin^g^requ^irem^en^ts^on^pers^on^s^ex^em^pt^f^r^om^regⁱ^s^t^ratⁱ^oⁿ^doesⁿ^o^t^vⁱ^ol^at^e
ⁱⁿ^th^{e U.S. w}^h^o^tr^ad^{e d}ⁱ^r^ectly^vⁱ^{a th}^e^th^{e ex}^ch^an^g^e^-^t^radin^g^requ^irem^en^{t of}^th^e
^{trade m}^a^tchⁱⁿ^g^s^y^s^t^em^of^{a f}^o^reigⁿ^Co^m^m^o^d^ity^Ex^ch^an^g^e^A^c^{t b}^y^tr^adⁱⁿ^g^a
^m^a^r^k^{et. Mak}^e^{s it a v}ⁱ^o^l^atioⁿ^o^f^th^e^con^t^{ract on}^{a f}^o^reigⁿ^f^u^tu^res^m^a^rk^{et th}^at
^Co^m^m^o^d^ity^Ex^ch^an^g^e^A^c^{t to}^vⁱ^o^l^{ate a}^h^e^b^e^liev^e^{s to}^b^e^au^th^o^r^ized^an^d
^fo^r^eⁱ^{gn m}^a^r^k^e^t^o^r^r^e^gul^a^t^o^r^{’s r}^u^l^e^s^r^e^g^u^l^ated^b^y^{a f}^o^r^e^igⁿ^au^th^o^r^ity^{. Failu}^r^e
^desⁱ^gⁿ^e^{d t}^o^prev^en^t^m^aⁿⁱ^pu^l^a^tⁱ^oⁿ^or^of^{a f}^o^reigⁿ^{board of}^{traded to com}^p^ly
^ex^ces^sⁱ^v^e^s^p^ecu^lation^,^w^h^en^th^{e con}^t^ract^w^ith^CFT^C^r^e^q^u^ir^em^en^{ts d}^o^e^{s n}^o^{t m}^a^k^e
^bein^g^{traded is}^bas^e^{d on}^an^en^erg^y^con^t^racts^{traded on}^th^{at ex}^ch^an^g^e
ⁱ^{ki/CRS-RL34555}^co^m^m^o^d^ity^an^d^{settles ag}^ain^s^{t th}^{e p}^r^ice^of^{a U.S. con}^t^{ract. (Sec. 4)}^uⁿ^eⁿ^f^{orceable. (Sec. 4)}
^g/w
^s^.or^o^r^kⁱⁿ^g^g^r^o^u^p^o^fⁱⁿ^terⁿ^atioⁿ^a^l^Directs^th^{e C}^F^T^C^{to con}^v^eⁿ^e^{a g}^r^ou^{p of}^{No com}^p^{arable prov}^is^ion
^le^ak^a^t^o^r^sⁱⁿ^terⁿ^atioⁿ^a^{l r}^e^g^u^l^ato^r^{s to}^d^e^v^e^lo^p
^uni^fo^r^m^r^e^p^o^r^tⁱ^{ng a}ⁿ^d^r^e^gul^a^t^o^r^y
^://wiki^s^t^an^dards^f^o^{r en}^erg^y^f^u^tu^res^m^a^rk^ets^.
^h^ttp^{(Sec. 5)}
^d^e^fⁱⁿ^itioⁿ^o^f^h^e^d^gⁱⁿ^g^C^r^{eates a n}^e^w^d^e^fⁱⁿ^itioⁿ^,^“^l^eg^itim^ate^W^ith^res^p^{ect to ag}^ricu^ltu^{ral an}^{d en}^erg^y^T^h^es^{e prov}^is^ion^s^ov^ertu^rn^cu^rren^{t C}^F^T^C
^h^e^dg^{e tradin}^g^,^{” th}^{at applies}^{to en}^erg^y^co^m^m^o^d^{ities, b}^oⁿ^{a f}ⁱ^d^e^h^e^d^gⁱⁿ^g^an^{d ex}^ch^an^g^e^ru^les^th^{at perm}^{it certain}
^co^m^m^o^d^{ities. A}^p^p^{lies o}ⁿ^ly^to^d^e^rⁱ^v^a^tiv^es^tran^s^action^s^{are th}^os^{e th}^{at m}^aⁿ^a^g^e^price^fⁱⁿ^aⁿ^c^{ial in}^ter^m^ed^iarⁱ^{es (}^e^.g^{., sw}^ap
^tr^an^sactioⁿ^sⁱⁿ^v^o^lvⁱⁿ^g^co^m^m^e^r^c^ial^rⁱ^sk^ar^isin^g^f^r^o^m^p^h^y^s^{ical tr}^an^sactioⁿ^sⁱⁿ^d^ealer^s)^to^q^u^alif^y^f^o^r^h^e^d^gⁱⁿ^g
^produ^cers^an^{d pu}^rch^a^s^e^rs^of^act^u^a^l^co^m^m^o^d^{ities, o}^r^fⁱⁿ^aⁿ^c^{ial tr}^an^sactioⁿ^s^ex^em^p^tioⁿ^s^f^r^o^m^p^o^s^itioⁿ^lim^{its th}^at
^p^h^y^s^{ical en}^er^g^y^co^m^m^o^d^{ities, o}^r^to^tr^ad^es^w^h^{ere on}^{e cou}ⁿ^t^erparty^dealsⁱⁿ^th^e^ap^p^l^y^to^sp^ecu^lato^r^s^.

^b^y^fⁱⁿ^aⁿ^c^{ial in}^ter^m^ed^iarⁱ^{es th}^at^ph^y^s^{ical com}^m^odity^{. (Sec. 8)}
^accom^m^{odate s}^u^ch^trades^{. T}^h^{e latter are}
^called^f^o^llo^w^-^oⁿ^tr^ad^{es, an}^d^m^u^st
^corres^pon^{d clos}^elyⁱⁿ^timⁱⁿ^g^an^{d s}ⁱ^{ze to}
^th^{e ph}^y^s^{ical trader’}^s^tran^s^action^.^{(Sec. 6)}

CRS-31
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
^{ior C}^F^T^C^action^s^Directs^th^{e C}^F^T^C^{to rev}ⁱ^ew^prev^iou^s^{No ex}^actly^com^p^{arable prov}^is^ion^,^bu^t
^actioⁿ^s^to^d^e^ter^mⁱⁿ^{e w}^h^eth^e^r^th^ey^h^a^v^e^{Sec. 11 directs}^th^{e C}^F^T^C^{to rev}ⁱ^ew^prior
^t^h^{e ef}^f^ect^of^prot^ectⁱⁿ^g^an^{d prom}^otⁱⁿ^g^action^s^{to en}^s^u^{re th}^{at th}^ey^{are in}
^leg^itim^{ate h}^e^d^g^{e tr}^adⁱⁿ^g^an^d^elimⁱⁿ^atin^g^co^m^p^lian^{ce w}^ith^th^{is act.}
^ex^ces^sⁱ^v^e^s^p^ecu^lation^.^{(Sec. 6)}
^sitioⁿ^lim^its^Dir^{ects th}^{e CFT}^C⁽^w^ithⁱⁿ³⁰^d^a^y^s^o^f^Dir^{ects th}^{e CFT}^C⁽^w^ithⁱⁿ⁶⁰^d^a^y^s^o^f^T^h^{e Sen}^a^{te b}^{ill ap}^p^{lies to}^r^e^g^u^l^ated^an^d
^en^actm^eⁿ^t⁾^to^im^p^o^s^{e p}^o^s^itioⁿ^lim^{its o}ⁿ^en^actm^eⁿ^t⁾^to^im^p^o^s^{e p}^o^s^itioⁿ^lim^{its f}^o^r^ov^er-^t^h^e^-^c^ouⁿ^t^{er m}^a^rk^ets^;^th^{e Hou}^s^{e on}^ly
^reg^u^l^{ated an}^{d cov}^e^{red ov}^er-^t^h^e^-^c^ouⁿ^t^er^coⁿ^t^r^{acts b}^a^sed^oⁿ^en^er^g^y^co^m^m^o^d^ities^{to reg}^u^l^{ated m}^a^rk^ets^.^How^e^v^e^{r, Section}
^m^a^r^k^{ets in}^en^er^g^y^co^m^m^o^d^{ities, to}^ap^p^l^y^o^r^th^{e ag}^rⁱ^cu^ltu^r^e^co^m^m^o^d^ities¹⁴^o^f^th^{e Ho}^u^s^{e b}^{ill w}^o^u^l^d^gⁱ^v^e^th^e
ⁱ^{ki/CRS-RL34555}^to^{all tr}^adⁱⁿ^g^th^{at is n}^o^{t leg}^itim^{ate h}^e^d^g^e^tradin^g^.^{(Sec. 6)}^en^u^m^{erated in}^Section^{1a(4) of}^th^e^Co^m^m^o^d^ity^Ex^ch^an^g^e^A^c^{t. T}^h^{ese lim}^its^CFT^C^au^th^o^r^ity^to^im^p^o^s^{e OT}^{C p}^o^s^itioⁿ^lim^{its if}^{it f}^o^uⁿ^d^th^{at th}^{e OT}^{C m}^a^r^k^ets
^g/w^w^{ill ap}^p^l^y^to^ex^ch^an^g^e^{s, d}^e^rⁱ^v^a^tiv^es^h^a^d^th^{e p}^o^t^en^{tial to}^dⁱ^sr^u^p^{t r}^e^g^u^l^ated
^s^.or^tr^an^sactioⁿ^ex^ecu^tioⁿ^f^{acilities, an}^d^m^a^rk^{et liqu}ⁱ^dity^{or price dis}^c^ov^ery^,^cau^s^e
^le^ak^electr^oⁿⁱ^{c tr}^adⁱⁿ^g^f^{acilities tr}^adⁱⁿ^g^di^s^t^u^r^ban^cesⁱⁿ^t^h^{e s}^pot^m^a^rk^et^{, or}
^sⁱ^gⁿⁱ^fⁱ^can^{t price dis}^c^ov^ery^m^a^rk^ets^(th^a^t^prev^en^{t prices}^f^r^om^ref^l^ectin^g^s^u^pply^an^d
^://wiki^is^{, th}^{e m}^a^rk^ets^w^h^{ere C}^F^T^C^h^a^s^dem^aⁿ^d^.

^h^ttp^j^u^rⁱ^sdⁱ^c^tⁱ^o^{n und}^e^r^c^u^r^r^e^nt^l^a^w⁾^.⁽^S^e^c^.⁸⁾

CRS-32
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
^vⁱ^so^r^y^g^r^o^u^p^s^oⁿ^p^o^s^itioⁿ^lim^its^Dir^{ects th}^{e CFT}^C^to^coⁿ^v^eⁿ^e^an^ad^vⁱ^so^r^y^C^r^eates^s^e^{parate adv}ⁱ^s^o^ry^g^r^ou^ps^f^o^r
^g^r^o^u^p^,^coⁿ^s^istin^g^p^r^im^ar^ily^o^f^en^er^g^y^an^d^ag^rⁱ^cu^ltu^r^a^{l p}^o^s^itioⁿ^lim^{its, to}
^com^m^e^rci^a^l^produ^cers^an^{d pu}^rch^a^s^e^rs^ofⁱⁿ^clu^d^{e ph}^y^s^{ical h}^e^dg^ers^,ⁿ^oⁿ^-
^en^er^g^y^co^m^m^o^d^{ities, to}^m^a^k^e^com^m^e^{rcial s}^p^ecu^lators^{, an}^{d ex}^ch^an^g^e
^recom^m^eⁿ^d^atⁱ^oⁿ^s^abou^t^appropri^a^t^e^repres^en^tativ^es^{. T}^h^{e g}^r^ou^ps^s^h^{all m}^a^k^e
^lev^e^{ls f}^o^r^sp^ecu^lativ^{e p}^o^s^itioⁿ^lim^its.^r^eco^m^m^eⁿ^d^atioⁿ^s^to^th^{e CFT}^C^w^ithⁱⁿ⁶⁰
^T^h^{e C}^F^T^C^{, w}ⁱ^t^hⁱⁿ^{270 day}^s^of^d^a^y^s^ab^o^u^{t th}^{e ap}^p^r^o^p^r^{iate lev}^e^{l f}^o^r
^en^actm^eⁿ^t^{, s}^h^{all an}^aly^{ze th}^es^e^p^o^s^itioⁿ^lim^{its, an}^d^w^h^eth^e^r^th^{e lim}^its
^r^eco^m^m^eⁿ^d^atioⁿ^s^an^d^r^e^p^o^r^{t to}^Coⁿ^g^r^ess.^o^ught^t^o^b^e^eⁿ^fo^r^c^e^d^b^y^t^h^e^CFT^C^o^r^b^y
^W^ithⁱⁿ¹⁸^m^oⁿ^t^h^s^o^f^en^actm^eⁿ^t^{, th}^e^th^{e m}^a^rk^ets^.^{(Sec. 8)}
ⁱ^{ki/CRS-RL34555}^CFT^C^sh^{all p}^r^o^m^u^l^g^a^{te a f}ⁱⁿ^a^{l r}^u^le^settin^g^p^o^s^itioⁿ^lim^{its f}^o^rⁿ^oⁿ^l^eg^itim^ate
^g/w^h^e^d^g^{e tr}^adⁱⁿ^gⁱⁿ^en^er^g^y^co^m^m^o^d^ities.
^s^.or^{(Sec. 6)}
^le^ak
^sitioⁿ^lim^{its v}^e^rsu^s^acco^uⁿ^t^ab^ility^No^ex^p^{licit p}^r^o^v^isioⁿ^,^b^u^{t ap}^p^ear^{s to}^call^Modifⁱ^es^th^{e core prin}^{ciple apply}ⁱⁿ^g^to^P^o^sitioⁿ^lim^{its ar}^{e n}^u^m^er^{ical ceilin}^g^s^oⁿ
^://wiki^e^ls^f^o^r^{set lim}^{its, r}^a^th^er^th^an^f^l^ex^ib^le^reg^u^l^{ated deriv}^a^tiv^es^m^a^rk^ets^{to s}^p^ecif^y^th^{e n}^u^m^{ber of}^con^t^racts^{a pers}^on^m^a^y
^h^ttp^acco^uⁿ^t^ab^ility^lev^e^{ls. (Sec. 6}⁾^th^{at en}^erg^y^com^m^odity^con^t^racts^m^u^s^t^be^h^o^ld^{. P}^o^sitioⁿ^acco^uⁿ^t^ab^ility^lev^e^{ls are}
^su^b^j^{ect to}^p^o^s^itioⁿ^lim^{its, r}^a^th^er^th^anⁿ^u^m^{erical th}^res^h^olds^{; traders}^w^h^{o breach}
^acco^uⁿ^t^ab^ility^lev^e^{ls. (Sec. 9}⁾^th^{e acco}^uⁿ^t^ab^ility^lev^e^{ls m}^u^{st ex}^p^l^ain^to
^th^{e ex}^ch^an^g^e^w^h^y^th^ey^{are tak}ⁱⁿ^g^s^u^ch^a
^lar^g^{e p}^o^s^itioⁿ^,^an^d^m^a^y^b^e^o^r^d^e^r^e^d^to
^s^t^{op accu}^m^u^latin^g^con^t^racts^.
^portⁱⁿ^g^requⁱ^r^em^en^t^s^f^o^{r ov}^er-^t^h^e^-^Req^u^ir^{es th}^{e CFT}^C^to^im^p^o^s^{e r}^e^p^o^r^tin^g^Dir^{ects th}^{e CFT}^C^to^r^e^q^u^ir^{e r}^e^p^o^r^tin^g^o^f^Un^d^e^r^th^{e Ho}^u^s^{e b}^{ill, if}^th^{e r}^e^p^o^r^ts
ⁿ^t^{er tran}^s^action^s^requ^irem^en^ts^on^“^c^ov^{ered” OT}^C^en^erg^y^tradin^gⁱⁿ^OT^C^con^t^ractsⁱⁿ^en^erg^y^an^d^receiv^e^{d by}^th^{e C}^F^T^Cⁱⁿ^{dicate th}^{at th}^e
^c^o^nt^r^a^c^t^s.^T^h^e^CFT^Cⁱ^s^gi^ve^{n se}^ve^r^a^l^ag^rⁱ^cu^ltu^r^a^{l co}^m^m^o^d^{ities. A}^p^p^{lies to}^OT^{C m}^a^r^k^{et h}^a^{s th}^{e p}^o^t^en^{tial to}^dⁱ^sr^u^p^t
^cr^iterⁱ^{a f}^o^r^d^e^ter^mⁱⁿⁱⁿ^g^w^h^ich^coⁿ^t^r^acts^c^o^nt^r^a^c^t^{s t}^h^a^t^a^r^e^“fungi^b^l^e^”^wⁱ^t^h^th^{e reg}^u^l^{ated m}^a^rk^ets^{or th}^{e price}
^ar^{e to}^b^e^co^v^e^r^e^d^{., b}^u^{t h}^a^{s d}ⁱ^scr^e^tioⁿⁱⁿ^con^t^racts^{traded on}^{a reg}^u^l^{ated m}^a^rk^et.^di^s^c^ov^ery^proces^s^,ⁱ^t^m^a^yⁱ^m^pos^{e O}^T^C
^m^a^ki^{ng t}^h^e^d^e^si^gna^tⁱ^o^n.⁽^S^e^c^.⁷⁾^{(Sec. 14)}^p^o^s^itioⁿ^lim^{its. (}^S^{ec. 1}⁴⁾

CRS-33
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
^erg^eⁿ^c^y^au^th^orityⁱⁿ^OT^C^m^a^rk^ets^Iⁿ^th^{e ev}^en^{t of}^{a “}^m^aj^{or m}^a^rk^et^{No com}^p^{arable prov}^is^ion^.
^dis^t^u^r^ban^{ce,” as}^defⁱⁿ^e^{d, th}^{e C}^F^T^C^m^a^y
^o^r^d^e^r^th^{e liq}^uⁱ^d^a^tioⁿ^o^f^OT^{C p}^o^s^itioⁿ^s^o^r
^t^a^ke^o^t^he^r^a^c^tⁱ^o^{ns ne}^c^e^ssa^r^y^t^o^r^e^st^o^r^e
^orderl^y^t^r^adiⁿ^g^.^(S^{ec. 7)}
^dex^traders^an^{d s}^w^{ap dealers}^D^ir^{ects th}^{e CFT}^C^to^r^e^q^u^ir^{e r}^o^u^tin^e^Req^u^ir^{es th}^{e CFT}^C^to^d^e^fⁱⁿ^eⁱⁿ^d^e^x
^reportⁱⁿ^g^byⁱⁿ^dex^t^r^aders^an^{d s}^w^ap^traders^an^{d s}^w^{ap dealers}^by^ru^{le, an}^{d to}
^dealers^{, an}^{d rev}ⁱ^ew^th^{eir tradin}^gⁱ^m^pos^{e report}ⁱⁿ^g^requⁱ^r^em^en^t^s^on^t^h^em^.
^practices^{to en}^s^u^{re th}^{at th}^ey^{do n}^o^t^{(Sec. 6)}
ⁱ^{ki/CRS-RL34555}^adv^e^rs^ely^im^{pact th}^{e price dis}^c^ov^ery^proces^s^.^{(Sec. 8)}
^g/w
^s^.or^g^r^eg^atioⁿ^o^fⁱⁿ^d^e^x^f^uⁿ^d^d^a^ta^Req^u^ir^{es th}^{e CFT}^C^to^p^u^b^lish^m^oⁿ^t^h^l^y^Sim^ilar^p^r^o^v^isioⁿ^s^{, b}^u^{t CFT}^C^m^u^st
^le^ak^dat^a^on^t^h^{e n}^u^m^{ber an}^{d v}^a^l^u^{e of}ⁱⁿ^dex^pu^blⁱ^s^h^dat^a^on^{a w}^eek^l^y^basⁱ^s^,^an^d
^fund⁽^a^nd^o^t^he^r^p^a^ssi^ve^l^y^-m^aⁿ^a^g^e^d^,^l^o^ng-^applies^{to ag}^ricu^ltu^{re as}^w^e^{ll as}^en^erg^y^.
^://wiki^oⁿ^ly⁾^p^o^s^itioⁿ^sⁱⁿ^en^er^g^y^m^a^r^k^{ets. (}^S^ec.^{(Sec. 5)}
^h^ttp⁹⁾
^a^{l res}^o^u^r^ces^f^o^{r C}^F^T^C^Directs^th^{e C}^F^T^C^{to h}ⁱ^{re 100 n}^e^w^Sim^ilar^p^r^o^v^isioⁿ^s^{, ex}^cep^{t th}^{at th}^{e n}^e^w
^em^ploy^ees^{to in}^creas^{e tran}^s^p^aren^cy^an^d^em^ploy^ees^{are to m}^oⁿ^{itor ag}^ricu^ltu^{ral as}
^im^prov^{e en}^f^o^rcem^en^{t in}^en^erg^y^f^u^tu^res^w^e^{ll as}^en^erg^y^m^a^rk^ets^.^A^l^s^o^{, elev}^ates
^m^a^rk^ets^.^{(Sec. 10)}^th^{e C}^F^T^C^In^s^p^{ector Gen}^e^{ral to an}
ⁱⁿ^depen^d^en^{t of}^fⁱ^{ce. (Sec. 10)}

CRS-34
^Provi^sⁱ^on^S^.³²⁶⁸^H.R^.⁶⁶⁰⁴^C^o^m^m^eⁿ^t^s
ⁱⁿ^g^G^r^ou^{p on}^En^erg^y^Mark^et^s^C^reat^es^{a w}^o^rkⁱⁿ^g^g^r^ou^{p of}^f^e^deral^{No com}^p^{arable prov}^is^ion^.
^ag^en^{cies, in}^itially^ch^air^e^d^b^y^th^e
^Secretary^of^En^erg^y^{, to s}^t^u^d^y^th^{e im}^pact
^o^f^sp^ecu^latioⁿ^an^dⁱⁿ^terⁿ^atioⁿ^a^{l m}^a^r^k^ets
^on^en^erg^y^prices^{, iden}^tif^y^th^{e f}^actors^th^at
^af^f^{ect en}^erg^y^prices^{, an}^{d rev}ⁱ^ew^th^e
^ef^f^ectiv^en^{ess o}^f^f^e^d^e^r^a^{l r}^e^g^u^l^atioⁿ^.
^(S^ecs^{. 11 an}^{d 12)}
^r^a^{l g}^a^{s in}^v^e^stig^atioⁿ^D^ir^{ects FERC to}ⁱⁿ^v^e^stig^{ate th}^{e r}^o^{le o}^f^{No com}^p^{arable prov}^is^ion^.
ⁱ^{ki/CRS-RL34555}^fⁱⁿ^aⁿ^c^{ial in}^stitu^tioⁿ^sⁱⁿⁿ^a^tu^r^a^{l g}^a^s^m^a^rk^ets^.^{(Sec. 14)}
^g/w
^s^.or^d^{ies an}^d^r^e^p^o^r^ts^{Calls f}^o^r^tw^o^GA^{O stu}^d^{ies: o}ⁿ^Req^u^ir^{es sim}^ilar^GA^{O stu}^d^{ies. (}^S^{ec. 1}³⁾
^le^akⁱⁿ^terⁿ^atioⁿ^a^{l r}^e^g^u^l^atioⁿ^o^f^en^er^g^y
^deriv^a^tiv^{e m}^a^rk^ets^an^{d on}^th^{e ef}^f^ects^of
^://wikiⁿ^oⁿ^-^com^m^e^{rcial s}^p^ecu^lators^on^en^erg^y
^h^ttp^prices^.
^{Calls f}^o^r^{a CFT}^C^r^e^p^o^r^{t o}ⁿ^th^e
^im^p^l^em^en^tatioⁿ^o^f^th^{is act.}
^{(Sec. 15)}
^pedi^t^e^{d procedu}^r^es^A^u^t^h^ori^zes^th^{e CFT}^C^to^u^s^{e ex}^p^e^d^ited^Sim^ilar^p^r^o^v^isioⁿ^.⁽^S^{ec. 1}⁵⁾

^an^{d em}^erg^eⁿ^c^y^procedu^r^es^{to im}^plem^en^t
^th^is^{act. (Sec. 16)}

Appendix. Mechanics of Futures Contracts
The Mechanics of a Futures Contract
An oil futures contract represents 1,000 barrels of oil, but neither party to the contract
need ever possess the actual commodity. (Contracts may be settled by physical delivery, but
in practice the vast majority are settled in cash.) When a contract is made today, one party
(called the “long”) agrees to buy oil at a future date from the other (the “short”). Contracts are
available with different maturities, designated by expiration months, but the size is always the
same. (In oil, there is a contract expiring every month.) The price at which this future
transaction is to take place is the current market price. Assuming the price of oil is $135 per
barrel, the long trader is committed to buy at that price, and the short is obliged to sell.
Assume that tomorrow the price of oil goes to $140/barrel. The long trader now has the
advantage: he is entitled to buy for $135 oil that is now worth $140. His profit is $5,000 (the
$5 per barrel increase times the 1,000 barrels specified in the contract). The short has lost the
identical amount: she is obliged to sell oil for less than the going price.
If, on the following day, the price goes to $145, the long gains another $5,000. The short,
down a total of $10,000, may reconsider her investment strategy and decide to exit the market.
She can do this at any time by entering into an offsetting, or opposite transaction. That is, she
purchases a long contract with the same expiration date. Her obligation (on paper) is now to
sell 1,000 barrels (according to the first contract) and to buy 1,000 barrels (the second contract)
when both contracts expire simultaneously. Whatever price prevails at that time, the net effect
of the two transaction will be zero. The short’s position is said to be “evened out” — she is out
of the market.
The short’s decision to exit does not affect the long, who may prefer to ride with the trend.
This is because all contracts are assumed by the exchange’s clearing house, which becomes the
opposite party on each trade, and guarantees payment. The ability to enter and exit the market
by offset, without having to make or take delivery of the physical commodity, permits trading
strategies based on short-term price expectations. While some traders may keep a long or short
position open for weeks or months, others buy and sell within a time frame of minutes or
seconds.
The exchange clearing house, which guarantees all trades, also controls traders’ funds.
Before entering into the trade described above, both long and short would have been required
to deposit an initial margin payment of $11,813. (The amount is set by the exchange; the figure
is current as of June 30, 2008.) All contracts are priced, or “marked-to-market,” each day. The
long trader above would have had his $10,000 gain credited to his margin account, while the
short would have had to make additional “maintenance” margin payments to cover her losses.
It is worth noting that her two-day $10,000 loss represents 85% of her original investment, that
is, her initial margin deposit of $11,813: the risks of futures speculation are high. When traders
exit the market, any funds remaining in their margin accounts are returned. (Other transaction
costs, such as brokerage commissions and exchange fees, are not returnable.)
Options on futures are also available for many futures contracts. The holder of an option
has the right (but not the obligation) to enter into a long or short futures contract over the life
of the option. The option will only be exercised if price movements are favorable to the option
buyer, that is, if the underlying futures contract would be profitable. The seller of the option
receives a payment (called a premium) for granting this right. The seller profits if the option
is not exercised by the buyer.