Each barrel of oil is swapped 20 to 25 times before it is retailed in the US, each tonne of sugar 10 to 15 times before its sold in India. Why are prices of Carbon, energy, food so volatile as regulators look away ?

1. Big Banks Control All
“From Commodities to Countries”
ECOTHRUST
1

2. INDEX
1 Carbon Markets Create Price Hikes in Europe 3
2 Did EU ETS "Cap and Trade" Cause Energy Prices to Skyrocket? 7
3 Peak Oil Debate Piques Interest at Davos 11
4 Energy Speculations Spur Chinese Interest 16
5 Sugar Prices Leap as Commodity Futures Punt on Bio fuels 20
6 Big Banks Today Control "Commodities To Countries" 24
7 NOTES 28
Key References:
1 Levin and Feinstein Introduce Oil Trading Transparency Act 29
2 Mrs Feinsteins’ presentation at the US Senate on 23rd July 2008 32
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Eco thrust Blog http://bit.ly/ecothrust
The seven articles of this series on Technorati are with an
intention to establish the hold big business today has on the
prices of carbon, energy, food and livelihood and how they
have been successful to manipulate regulators and
politicians of even the oldest democracies of the world to
create super profits at the taxpayers’ cost, in the name of
climate change or free market economics. Only a
transaction tax at the future markets can stop them from
growing and bring equilibrium.
ECOTHRUST
2

3. Carbon Markets Create Price Hikes in
Europe
Author: Sandip Sen
Published: January 22, 2010 at 8:12 am
“Technorati“
Share
Energy prices doubled in Europe from 2004
levels after implementation of the EU ETS 1,
reports a Bloomberg study linking carbon
prices to the energy price hike.
A Bloomberg energy analyst
had predicted before the Copenhagen
conference that another related energy price
hike was on the way. However, the failure of
COP15 to create an emissions accord
dampened speculative activity in Europe’s
carbon markets, ensuring a fall to lower levels
thereafter.
ECOTHRUST
3

4. A look at the futures market shows us sharp
fluctuations in carbon prices since 2004.
Starting strong at slightly over €25, the carbon
prices peaked at €33 in April 2006 before
plummeting (below €1 in unofficial deals
outside the energy exchanges).
Seeing the carbon prices dissipate like so much
hot air had the EU in a flutter. The official
trading prices of carbon in Amsterdam and
London were controlled by choking the issue
of free permits (blue lines in graph below).
4

5. ECOTHRUST
The controlling of free issue of EU ETS I by the
European Commission alone was not enough.
Many countries, including France and
Germany, had received over 20 million excess
carbon permits resulting in abundant
availability in the market.
Carbon prices kept on moving down and
volumes refused to grow until the beginning of
2007, as permits issued were reportedly 6–10%
over the actual demand. French and German
companies were sitting on a unsold pile of
carbon permits as the bottom dropped out and
EU ETS Phase 2 was ushered in 2008.
The new series of EU carbon credits saw
volumes rise again as the old permits were no
longer valid, but some lost out in process.
5

6. ECOTHRUST
Though there is no direct relation of the two,
there was a sharp price rise in the energy
sector after the implementation of EU ETS
phase I and commencement of cap and trade.
This becomes all the more worrisome for the
consumer as, since the 1990s, energy prices
had been dormant in Europe and stock prices
in the energy majors had never been as
buoyant as they are now. Did hot air from the
carbon trade blow away the consumers' dream
of stable energy prices in Europe?
----------
6

7. ECOTHRUST
Did EU ETS "Cap and Trade" Cause
Energy
Prices to Skyrocket?
Author: Sandip Sen
Published: January 27, 2010 at 8:04 pm
“Technorati”
Share
After two decades of stability since the Gulf
War of 1973, oil prices started a skywards
march as Europe's emission trading scheme
took roots.
The regulatory framework of EU ETS under
Kyoto provided sufficient assurance and
incentives to the energy industry without
meaningful benchmarking to ensure that all
were subsidized and compensated equally with
free carbon permits, immaterial of their
thermal and emission efficiency.
7

8. ECOTHRUST
The incentive was to switch preferences to the
less polluting oil during peak load operations.
The perfect emissions cum profit mantra
seemed to be plan and obtain carbon permits
as a coal fired unit, and operate with coal, oil,
or gas mix to get the best of both worlds. But
there was a catch.
Pouncing on the cap and trade opportunity
that had taken years to create, oil majors
formed commodity cartels and had prices
galloping across Europe and the rest of the
world.
8

9. ECOTHRUST
Energy producers in EU doubled prices of
power after 2004 as oil and carbon prices
galloped. Thus, instead of giving a boost to the
reduction of emission and to the growth of
renewable energy, the EU ETS cap and trade
mitigation policy fanned oil and carbon prices,
and hurt consumers who had to pay for the
tariff hikes.
Few big producers in the UK like EDF Energy
and British Gas offered renewable energy, but
with differential pricing and power quality,
attracting few buyers. Others like Ebico,
Scottish Power, and Power Gen continued with
fossil plus hydro power. All of them were
getting free carbon permits for cap and trade
but chose to ignore CDM in the true spirit. The
liberal EU ETS policies and implementation
caused emission to rise by 3% instead of a
drop of 5%, as agreed at Kyoto.
9

10. ECOTHRUST
Meanwhile, the OPEC ORB 5-year averages
computed from crude oil prices since the
eighties showed a quantum jump after 1997
and especially since 2004. This gave sceptics
reason to criticize Kyoto instead of the faulty
cap and trade.
However, unlike normal belief, it was not the
OPEC producers who created this very sharp oil
price hike that affected the global industry. We
shall go into the details of how and why the
energy prices jumped in our subsequent
articles at Technorati on the COP15 failure.
---------------
10

11. ECOTHRUST
Peak Oil Debate Piques Interest at
Davos
Author: Sandip Sen
Published: January 31, 2010 at 8:46 pm
‘Technorati’
Share
The oil speculation [PDF file] cat is out of the
bag. Tony Hayward, group chief executive of
BP, made the tallest claim at the World
Economic Forum in Davos, that there was a
"supply challenge" for the energy industry,
which would have to increase output to
100mbd - a new peak for oil from the current
capacities of 83-84mbd. Peter Voser, the chief
executive of Shell, said that the industry would
have to find up to US$27 trillion of investment
over the next 20 years to meet demand.
11

12. ECOTHRUST
'Group Europe’s' claim was promptly labelled
as bluff by Khalid al Falih, Armco’s chairman
and chief executive, dismissing claims of a
shortage, or a demand surge in oil. The head
of the largest oil producing corporation in the
world hit out at "misleading" rhetoric that the
world was weaning itself off fossil fuels, saying
this did not give producers confidence to keep
investing in production. Saudi Aramco’s CEO
was dismissive of Europe’s stark concerns.
“We don't believe in peak oil”, he said in a
candid statement made after his speech.
12

13. ECOTHRUST
The BP-Shell duo have a long road to go to
convince all markets of their point of view. It is
said that the oil majors are creating speculative
pressure on the commodity markets with the
help of commodity speculators and banks like
Goldman Sachs and Morgan Stanley . Europe’s
falling oil output at North Sea has been the
talk of the energy circles during the last few
years, even as intense speculative activity
around Brent Oil at the London Exchange has
been driving oil prices upwards.
13

14. ECOTHRUST
Future contracts of oil and gas at the ICE and
NYMEX (with 6% margin money) are changing
14

15. hands several thousand times a day, at times
in "round trip trading", to fuel
speculation, which is not new for
the energy industry.
ECOTHRUST
Oil is a commodity for which OECD demand is
dropping but stocks rising. It is apparent that
locking up billions in oil stocks and
speculation is not approved by many, as ten
major, recent oil discoveries could use those
locked up funds. Besides, the resultant price
rise is hurting the consumer during the coldest
winter of the decade, that led to the highest
net - long positions in the futures market
since the early Eighties.
15

16. -------------
ECOTHRUST
Energy Speculations Spur Chinese
Interest
Author: Sandip Sen
Published: February 10, 2010 at 11:43 am
Share
Chinese Vice Premier Li called on the
"global reserve currency issuers" at Davos to
show greater accountability and discipline.
16

17. Price manipulation in the commodity and
futures markets are creating serious doubts in
mind of the consumers worldwide and
affecting the credibility of regulators.
Surprisingly it is not Senators Levin and
Feinstein, but China whose protests are now
being heard.
ECOTHRUST
A decade ago commodity trades were spiked
by Europe’s back street boys from Swiss
headquarters running up price rigging rackets
in oil supplied from strife torn nations like
Angola, Nigeria, Venezuela, Iran, Iraq, Yemen,
and Sudan. Companies like Glencore,
Trafigura, and Taurus Oil ruled the markets
and fixed prices as oil and food moved
through war zones and embargoes.
17

18. Though crimes were serious, the scales were
smaller and unable to affect global commodity
prices seriously. The first major offender in the
commodity scam was the Enron Corporation,
coincidentally an energy company. They used
financial innovation and round-trip swaps in
the futures markets and showed the next
generation how to execute the unethical
legally.
ECOTHRUST
Insider trading was out. Round-trip trading
was perfected to a fine art with the London
Loophole, where commodity cartels formed by
Europe's giant oil corporations and the big Wall
Street Banks were in. Thousands of cross
trading operations carried out each day jacked
up prices globally with cartel members
profiting from the upsurge of oil prices.
18

19. ---------------
ECOTHRUST
Manipulations in Brent Oil futures at ICE and
NYMEX had a ripple effect on both the large
OPEC oil market as well as on gas prices. The
China Investment Corporation recently picked
up a 3.4% stake worth USD 78.6 million in the
Goldman Sachs and Morgan Stanley operated
U.S. Oil Fund, an exchange-traded crude-
futures fund, in a strategy move to learn the
tricks of the trade to control markets.
19

20. Though President Obama did talk tough
against the big banks early this month and the
"Volcker report" touched on a few basic
issues, the Western economies are still
reluctant to impose a turnover tax on
commodities. Unless a token ad valorem
transaction tax is imposed and fictitious
round-trip deals that are spiking oil and food
prices are stopped, commodity prices will
boom and an Enron repeat will be in the cards.
--------------
ECOTHRUST
Sugar Prices Leap as Commodity Futures
Punt on Bio fuels
Author: Sandip Sen
Published: February 16, 2010 at 9:30 am
Share
The carbon economy has not only raised
energy costs but has started hurting food
prices, as commodity futures of sugar are
20

21. aggressively rising. The recent spurt was
triggered last year by India's announcement of
large scale sugar imports and shows no signs
of abetting. Reportedly, each barrel of oil is
swapped 25 to 30 times in the futures market
during price peaks before it finds its way to the
US retail markets at 50% higher prices.
Similarly one metric ton of sugar is cross
traded 10 to 15 times at the London exchange
before it reaches India, 30% overpriced.
ECOTHRUST
21

22. The drive for bio fuels by big oil is creating
commodity speculation in sugar, corn,
soybeans, and canola oil. The EPA's recent
clearance of the rule for expanded renewable
fuel standards (RFS2)—mandating the
production of 36 billion gallons by 2022—and
the development of commercial plants by
Range Fuels and Abengoa Bioenergy
have increased speculation.
ECOTHRUST
By 2020, 328 million barrels per
annum biodiesel will reduce GHG by 138
22

23. million MT consuming almost 40% of the US
corn crop and 20% of Brazil’s sugar cane.
Alternative energy today is entering into a very
critical sector that will impact the future of
nations, and worldwide poverty. The FAO
recently announced that an increase in
commodity and energy prices could bring
political upheaval in the developing world.
ECOTHRUST
Commercial ethanol plants are still not
operational in US and will have initially a
23

24. combined capacity of only 50 million gallons
per year. So it is not the bio fuel plants, the
high demand crops, or the processing
capacities that are causes for real concern, but
speculation.
Like coal and oil there is a demand drop in the
consumption of sugar, corn, and alcohol
worldwide. However, oil giants like Shell have
gone into long-term distribution MOU's with
Brazilian ethanol producers that will be adding
to speculation in the commodities market on
sugar futures.
The big cartels are rigging up the markets
once again. It's high time to start taxing
commodity futures transactions.
--------
ECOTHRUST
24

25. Big Banks Today Control "Commodities
To Countries"
Author: Sandip Sen
Published: February 19, 2010 at 4:40 pm
Share
Cross swaps in oil futures reportedly
yielded mega profits of over $50 billion last
year on a turnover of $2500 billion, a
commodity whose global stock value has been
traditionally less than $100 billion. In short
each barrel of oil was swapped 20 to 25 times
on paper among a closed cartel mostly at the
trader friendly London ICE Exchange as
volatility generated the super profits.
ECOTHRUST
The big four, the Wall Street bankers, Goldman
Sachs, Morgan Stanley, and European oil
majors BP and Shell—who hold the major
25

26. stocks of North Sea Brent Oil and West Texas
Intermediate—were the prime movers and
shakers. Incidentally they control the supply
chain around Europe with the help of friendly
Governments, lax regulators, and some quick
decisive investment in stocking and pipeline
facilities.
Over 80 million barrels of oil are being
hoarded in super tankers around the world
today, as per Frontline which owns the largest
tanker fleet worldwide. Morgan Stanley, BP,
and Shell’s own terminal stocking facilities in
Kuwait, the UAE, Africa, Europe, and the
Americas are used to soak up excess oil stocks
and quickly dump back the same to create a
market volatility at Europe’s future markets.
ECOTHRUST
"Contango" trades and falling charter prices
have ensured the viability of these giant
flotillas, and Morgan Stanley recently leased
26

27. out the giant super tanker Agenta to enhance
the grip. With a liberal price gap of $8 on
March futures and $21 on September rates it is
profitable to buy spot oil and hire the super
tankers today at around $1 a barrel for 3 to 6
months.
ECOTHRUST
Veterans of manipulation of Governments in
the West African oil deals, the big four are
today debt managing Europe’s excessive
leverage through a host of "off balance sheet
27

28. transactions," through a myriad of financiers in
lieu of regulators looking the other way at the
Commodity exchanges.
Thus it is not only Greece who should be
blamed for peddling future airport and lottery
receipts. Even the UK and EU are to blame for
off balance sheet financing deals comprising of
PFI to reduce public sector cost (reportedly
even a few prisons are off balance sheet
expenditures). No wonder regulators can’t
squarely deal with the "London loophole"
despite mounting public pressure to levy a
transaction tax on swaps
--------
ECOTHRUST
NOTES : THE ABOVE ANALYTICS HAVE BEEN DRAWN ON
ESTABLISHED DATA SOURCES LKE : WB, IEA, OPEC, THE
OILDRUM, THE RENEWABLE ENERGY ASSOCIATION,
28

29. BLOOMBERG, BUSINESS WEEK, FT, GAURDIAN, TELEGRAPH,
REUTER AND OTHER REPUTED NEW SOURCES BESIDES
UNITED STATES SENATE REPORTS AS PER EACH OF THE LINKS
GIVEN WITH TEXT. IN CASE A LINK DOES NOT ACTIVATE PLS
COPY & PASTE ON YOUR BROWSER or contact the author at
sen.sandip@gmail.com We also acknowledge with thanks the
effort of our Creative Director Katerina Voutsara for the
Video Presentation of this document.
The “London Loophole” is the operation of
computerised round trip swaps amongst a closed
cartel to raise prices of commodities. Being done
since the days of Enron at the ICE Exchange by a
cartel comprising of the big four, swaps is the
primary instrument that requires to be taxed by
the regulators per transaction to stop the bogus
speculative deals. The regulators have been able to
only partially plug the loophole though the issue
was raised by Senators Levin and Feinstein over 5
years ago, for the cartels find ways to circumvent the
regulators in absence of a transaction tax
--------
ECOTHRUST
KEY REFERENCES
29

30. Levin and Feinstein Introduce Oil Trading Transparency
Act
Bill would limit speculation in oil trading and close loophole for
trades on foreign exchanges using U.S. terminals
WASHINGTON – Senators Carl Levin (D-Mich.) and Dianne Feinstein (D-Calif.)
today introduced the Oil Trading Transparency Act to ensure that energy
commodities traded on foreign exchanges using trading terminals located
within the United States are subject to the same speculative trading limits
and reporting requirements as energy commodities traded on U.S.
exchanges.
“The United States places limits on speculative energy trades that contribute
to high prices,” said Levin. “But traders of U.S. crude oil know that they can
avoid U.S. limits and transparency requirements by trading crude oil futures
on the London exchange instead of the NYMEX exchange in New York. The
traders can do it by using computer terminals that are located in the United
States but provide direct access to the London exchange. Our legislation
would close this loophole by requiring that foreign boards of trade that
operate trading terminals in our country comply with the same speculation
trading limits and reporting requirements that apply to U.S. trades.”
ECOTHRUST
30

31. “Oil prices continue to set records – yesterday, oil hit $123 per barrel – and
there seems to be no relief in sight for consumers as we head into the
summer travel season. The concern is that energy markets are not working –
and that speculation adds an extra $20 - $25 per barrel to the price of oil.
We must protect these markets from manipulation, excessive speculation
and fraud,” Senator Feinstein said. “The good news is that Congress is
poised to finally close the ‘Enron Loophole,’ and place all major electronic
trades that could drive energy prices under the watchful eye of the CFTC.
However, I remain concerned that there are no comparable protections in
place when U.S. energy futures are traded on international markets –
presenting yet another regulatory loophole for energy traders to exploit. So,
this legislation would close that loophole and ensure that the trading of all
U.S. energy futures – whether on foreign or domestic markets – is done with
transparency and with an audit trail.”
The Levin-Feinstein Oil Trading Transparency Act would direct the
Commodity Futures Trading Commission (CFTC) to ensure that any foreign
exchange operating a trading terminal in the United States for the trading of
a U.S. energy commodity meets two regulatory requirements that already
apply to U.S. exchanges: (1) imposition of speculative trading limits to
prevent price manipulation and excessive speculation, and (2) the mandatory
daily publication of trading information from the exchange to ensure market
transparency.
The bill would also require the CFTC to obtain information from the foreign
exchange to enable it to determine how much trading in U.S. energy
commodities is due to speculation. The CFTC issues a weekly publication
with speculation data for U.S. markets.
ECOTHRUST
31

32. One example highlighting the need for this bill involves the Intercontinental
Exchange (ICE), which operates a key energy futures exchange in London
called ICE Futures Europe. ICE Futures Europe has set up computer terminals
here in the United States where U.S. traders can trade U.S. crude oil (West
Texas Intermediate) on the London exchange. West Texas Intermediate
crude oil is produced here, used here, and never leaves the United States,
but because it is traded on the London exchange, the trades are not subject
to U.S. trading regulations.
Traders who use the London exchange aren’t subject to the same
speculation limits that apply to U.S. exchanges like NYMEX, and the
exchange itself doesn’t have to provide daily reporting of their trading data
in the same manner as NYMEX. That regulatory disparity means U.S. traders
trading U.S. oil on the London exchange can engage in excessive speculation
that affects U.S. prices and not report their trades.
Earlier this year, Feinstein and Levin, along with Senator Olympia Snowe (R-
Maine) and others, introduced a measure to close the so-called “Enron
Loophole,” which has exempted electronic energy markets for large traders
from government oversight. This measure has been incorporated into the
farm bill which is expected to pass Congress and be sent to President Bush
in the near future. Additionally, Levin, who serves at the chairman of the
Permanent Subcommittee on Investigations, has conducted a number of
investigations into the pricing of energy commodities, including gasoline,
crude oil, and natural gas. These investigations reflect a continuing concern
over the sustained increases in the price and price volatility of these
essential commodities, and, in light of these increases, the adequacy of
governmental oversight of the markets that set these prices.
http://levin.senate.gov/newsroom/release.cfm?id=297513
-------------------
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32

33. Floor Statement in Support of the “Stop Excessive
Energy Speculation Act”
Floor of the United States Senate
Wednesday, July 23, 2008
MRS. FEINSTEIN: Mr. President, I wish I could come to the floor and
say there is a quick fix for gasoline prices at the pump. This is needed
as much as anywhere in California where gas prices are high -- and at
times the very highest.
I wish I could say there was a quick fix. But I really can't.
I wish I could say that if we could drill all of the Outer Continental
Shelf, if we could drill on all of the public land in America, the price of
pump would drop immediately, but I can't. In all good conscience I
don't believe that opening the Outer Continental Shelf to new drilling
would lower the prices at the pump any time in the near future.
• First place, it takes two years for Minerals and Management Services to
do the contracts.
• Second place, all drilling rigs are now leased. There need to be new
rigs.
• Third place, there is no additional refining capacity.
• Fourth place, drilling in the outer continental shelf and on public lands
in America over the last eight years has increased by 361% and at the
same time the price of oil has doubled.
ECOTHRUST
33

34. So there is no relationship between drilling on the outer continental
shelf, drilling on public lands in America and the price of oil. I deeply
believe this.
Some say it's simply a problem of supply and demand but physical
supplies of oil and natural gas have remained relatively stable over the
past year.
In fact, if you remember, executives from oil companies testified
before congress recently and asserted that the price should be about
$60 a barrel if it were just a matter of supply and demand.
Some point to instability in the Middle East and Africa's production
regions. Others have pointed to the falling dollar. These are certainly
factors. But it can't explain the sharp uptick in prices we've seen at the
pump over the last few months.
So what's really going on? What's new in this picture? Consumption in
America has dropped 3 percent this year over the same period last
year.
So what's new? There's only one thing that's different. There's only one
thing that's new -- and it's a massive influx of speculation in the
marketplace. This is the 800-pound gorilla.
Increasingly, experts now say that rampant speculation in energy
markets account for anywhere from 25 to 40 percent of the energy
price increase. Some will say even more.
ECOTHRUST
34

35. So I think we've got to take a look at why this is the case and what we
can do about it.
In May, Congress took a major step forward in the effort to bring more
oversight to energy futures markets when we enacted legislation to
close the notorious Enron loophole. The senator from Minnesota just
referred to it.
I had worked on this for six years. I came to the Floor when Phil
Gramm argued against it. We lost - got just 48 votes.
We came back again. We finally got it in the farm bill this time. The
notorious Enron loophole, today, is closed.
Now, what was that? This loophole was created in 2000 when a
measure was inserted in the dark of night into a must-pass
appropriations bill at the behest of Enron and others to essentially
eliminate them from the Commodities Modernization Act. Two
commodities were left out: energy and metals.
During the Western Energy Crisis, we saw the costs soar from $8
billion in 1999 to $27 billion in 2000, and then to $27.5 billion in
2001.
The reason for this was, in the main, manipulation, fraud, and reckless
speculation of the worst sort – all because you could trade on
electronic platforms with no transparency and there was no anti-fraud
or anti-manipulation oversight by the Commodities Futures Trading
Commission.
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35

36. When all was said and done, the energy traders left California
taxpayers with an increased bill of about $40 billion. To date, 32
companies have pled guilty to market manipulation and settled $6
billion in claims.
In recent years, we also saw the $6 billion collapse of the Amaranth
hedge fund because of unregulated speculation in natural gas futures
on electronic exchanges. And the list goes on. And this has typified
the energy marketplace.
So it became clear that a legislative fix was needed. And we finally got
that done, as I said.
The bill, which is now law, ensures that all major trades of energy
futures that could drive up prices, or have what's called a price
discovery impact, are placed under the oversight of the Commodities
Futures Trading Commission. The new law imposes limits on rampant
speculation, prevents fraud and manipulation, requires traders for the
first time to keep records and provide an audit trail to the CFTC.
This was a significant victory. It's signed into law.
But as we continue to learn more about what's really going on with
energy futures markets, it's clear that more work remains to be done.
We're learning about additional loopholes that must be closed. And the
legislation before us is critical to ensure that we can level the playing
field in energy markets, that there's transparency there.
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36

37. First, the problem of large institutional investors like pension funds --
this is what's new in this market.
From 2003 to 2008 institutional investments in commodity index
funds rose from $13 billion to $317 billion. That's in five years --
from $13 billion to $317 billion. Now, you might say, what does that
have to do with it?
Well, Daniel Yergin said what it has to do with it when he said that “Oil
has become the new gold a financial asset in which investors seek
refuge as inflation rises and the dollar weakens.” Investors seek
refuge.
So the implications are potentially devastating. And here's why. Unlike
gold, energy and agricultural commodities meet essential needs in
every day life of average people. They are limited. They aren't pork
bellies. Energy is limited in the amount we have.
And these institutional investors, the big pension funds like my own,
the California Public Employee Retirement Fund or CalPERS, has
invested over $1 billion in these markets.
These institutional investors are trading long on energy futures prices.
In other words, they are betting that the prices in these future markets
continue to rise. They're not hedging against the risk of changing oil
prices as airlines and utilities frequently do. They never take delivery
of a product. They participate in the oil markets only on paper.
ECOTHRUST
37

38. Yet these investors, the big ones, are currently exempt from CFTC
regulation when they execute these trades through brokers or dealers.
These trades are called "swaps."
Currently, the CFTC limits speculation positions to a total of 20 million
barrels of oil and three million barrels of oil in the last three days of a
contract. However, these same investors avoid these limits by
executing their trades as swaps. This is a mistake. Institutional
investors have become speculators.
Last month, the CFTC announced it would review trading practices for
these investors and this is a positive step. But legislation is still
needed to level the playing field and close the loophole. This bill
before us will limit the size and influence of institutional investor
positions in energy markets.
To further increase transparency this bill also requires the CFTC to
begin distinguishing between the institutional investor index trader
and the swaps dealers who broker their trades.
This legislation closes the swaps loophole bringing transparency and
speculative limits from contracts executed through swaps dealers. In
that way, preventing a price discovery function as much as possible to
keep prices from continuing to escalate.
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38

39. Specifically, the bill gives the CFTC the authority to begin collecting
data on large over-the-counter traders so it can determine whether
price manipulation or excessive speculation is taking place. And this
would ensure that the CFTC has a clear picture of all trading in over
the counter commodity markets.
Now, the London loophole.
What is the London loophole?
We must prevent U.S. crude oil contracts from being traded on
international exchanges without robust oversight.
A recent report found that traders were using the London exchange to
trade U.S. crude oil futures to avoid U.S. regulations – in other words,
go around it. Trades exceeded U.S. speculation limits every single
week since 2006.
Last month, CFTC announced it would limit this offshore market
speculation and require recordkeeping and an audit trail for these
traders. That's a start.
But legislation is still needed to codify the legislation. And this
legislation will require foreign exchanges with customers in the United
States to adopt the same speculation trading limits and reporting
requirements that apply to United States trade – ending the regulatory
race to the bottom.
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39

40. This language is based on legislation that Senator Levin and I
introduced previously. I believe very strongly that we must ensure that
American energy commodities are protected from manipulation and
excessive speculation regardless of where the commodities are traded.
Bottom line: this bill brings transparency, it brings accountability, it
brings recordkeeping, and it brings oversight to the energy markets.
It would impose sound, proven, economic principles to markets that
are currently broke and where speculation has increased so
dramatically that it is pushing price up. It would close regulatory and
legislative loopholes that prevent the CFTC from enforcing the
commodity exchange act in energy commodity markets.
I hope my colleagues will support it. I suspect it may not pass. I hope
it does because there is no question in my mind that the 800-pound
gorilla and the price of gasoline at the pump is excessive speculation
on commodities futures markets deals with energy.
Thank you very much, Mr. President. I yield the floor.
http://feinstein.senate.gov/public/index.cfm?
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