Close loopholes to discourage energy speculation

Legislation would strengthen derivatives oversight

Updated: Thursday, December 3rd, 2009 | By Catharine Richert

President Barack Obama promised to push legislation to close loopholes in the futures trading system.
 
Before we get into Obama's progress, we'll have to talk derivatives. Instead of trading an actual asset, derivative traders enter into agreements to exchange cash or assets over a period of time based on the value of the underlying asset. Currently, they're traded outside regulated markets and have caused a lot of trouble recently as a result; many financial experts blame the collapse of Wall Street and skyrocketing gas and oil prices on these trades.
 
The House Financial Services Committee, which oversees the Securities and Exchange Commission, and the Agriculture Committee, which oversees the Commodities Futures Trading Commission, has approved legislation that would crack down on the complicated market. Among other things, the bill would require trades to be processed through a central clearinghouse; cleared swaps would be traded on regulated exchanges and the transactions would be reported publicly. Furthermore, the bill would require the CFTC to set trading limits for physically deliverable commodities -- like oil -- to prevent excessive speculation.
 
The bill must make its way to the House floor for a vote and head to the Senate after that, where its fate is unclear. Until the bill becomes law, we're moving this promise to In the Works.

Sources:

Congressional Quarterly, Panel Works Through Amendments to Derivatives Measure, by Kate Davidson and Charlene Carter, Oct. 14, 2009

The House Agriculture Committee, press release on CFTC legislation , accessed Nov. 27, 2009