Levin Introduces Bill to Crack Down on Excessive Speculation in Energy and Agriculture Markets

WASHINGTON – Citing huge swings in the price of energy and food for American consumers, Senator Carl Levin (D-MI) introduced legislation today to prevent excessive speculation and price manipulation in U.S. energy and agricultural markets.

The Prevent Excessive Speculation Act would make changes in four critical areas: authorizing speculation limits in all energy and agricultural futures markets; closing the “swaps loophole” by regulating the over-the-counter market; closing the “London loophole” that allows U.S. crude oil traders to avoid speculation limits by trading on foreign exchanges; and requiring the Commodity Futures Trading Commission (CFTC) to revise the standards that allow traders who use futures markets to hedge their holdings to exceed the speculation limits that apply to everyone else.

“For the past two years, energy and food prices have been on a roller coaster, taking American consumers and the American economy on an unpredictable, expensive, and damaging ride,” said Levin. “These wild swings in the prices of basic commodities have aggravated our overall financial distress. We must act quickly to rebuild a solid regulatory framework for all of our commodity and financial markets. This bill takes an important step in that direction by strengthening enforcement, oversight, and disclosure in all energy and agricultural markets, and giving the CFTC new tools to tamp down rampant speculation.”

The Levin bill is very similar to legislation introduced by Senator Levin and others in the previous Congress (S. 3577) to enact a set of strong yet workable measures to protect U.S. energy and agricultural markets from excessive speculation and price manipulation. Specifically, the legislation would:

• require the CFTC to set limits on the holdings of traders in all energy and agricultural futures markets to prevent traders from engaging in excessive speculation or price manipulation;
• close the “swaps loophole” by authorizing the CFTC to set limits on speculation in the over-the-counter energy and agricultural markets, and by requiring large trades in those markets that affect futures prices to be reported to the CFTC;
• close the “London loophole” by giving the CFTC the same authority to police traders in the United States who trade U.S. futures contracts on a foreign exchange as it has for traders on U.S. exchanges, and by requiring foreign exchanges that want to install U.S. trading terminals to impose comparable trading limits and reporting requirements to those in U.S. exchanges; and
• require the CFTC to revise the standards that allow traders who use futures markets to hedge their holdings to exceed the speculation limits that apply to everyone else.

In the spring of 2008, Senator Levin led a successful bipartisan effort to close the Enron loophole to ensure that energy contracts traded on electronic exchanges were regulated like other types of futures contracts.