Today, the House Agriculture Committee held a hearing to assess the progress of global derivatives reforms since the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law five years ago. Dodd-Frank imposed sweeping new regulations over the financial industry, including the regulation of swaps under Title VII, which had previously not been regulated in the U.S.
Chairman Reviews Futures Markets & Gasoline Prices
WASHINGTON, D.C. – Today House Committee on Agriculture Chairman Bob Goodlatte chaired a hearing to review the role of futures markets in determining gasoline prices. Witnesses Walter Lukken, Commodity Futures Trading Commission Commissioner, and James Newsome, President and CEO of the New York Mercantile Exchange, testified that they had not discovered any manipulation or inappropriate activity in the futures market. As the average price of gas nationwide approaches $3, Chairman Goodlatte sought to ensure that activity on the futures markets was not unduly influencing the high price of gasoline.
“People are concerned, and rightly so, about the growing cost and availability of a commodity that is so essential to the American way of life. This, of course, extends to rural America where long car trips are part of the daily routine and producers rely on gasoline and diesel fuel to run their equipment. Higher input costs do place a significant burden on our producers and I want to ensure that no one is bearing the burden unwarrantedly,” said Chairman Goodlatte.
The Chairman cited several factors contributing to the current situation, including increased global competition for limited supplies of oil, the instability of foreign sources of energy, as well as disruptions in domestic production and refining capacity as a result of last year's hurricanes. The chairman also noted that Congress passed the Energy Policy Act of 2005 only last August, three years after it was first introduced. While earlier implementation would have given the U.S. a head start on the development of conventional and alternative energy sources, the legislation was delayed due to a lack of bipartisan support.
“While there are consequences for every action, there are also consequences for inaction. Over the years, Congress has considered multiple legislative packages aimed at increasing domestic production and streamlining regulations. These practical, feasible plans have not garnered the bipartisan support needed to create a sound domestic energy plan. Many proposals aimed at increasing domestic energy production have been consistently stymied by environmental extremists and their friends in Congress. The opportunities have been there, but we have not been able to capitalize on them due this lack of support,” said Chairman Goodlatte in his opening statement.
“Only after many years of delay was a comprehensive energy package, encouraging an increased production of many conventional and new sources of energy, passed by Congress. However, that delay is palpable today as the needed increases in energy sources have not kept up with demand,” the Chairman said.
The regulation of the futures market falls under the Committee’s jurisdiction. The Chairman’s goal was to determine if there is indeed reason to believe there are problems in the futures market, what type of surveillance is being conducted to prevent and detect manipulation, and if the regulators are equipped with the appropriate authority and enforcement mechanisms needed.
The witnesses testified that they believed they had sufficient tools and authority to prevent and detect manipulation in the futures market. “The evidence we have seen indicates that futures markets for crude oil and unleaded gasoline and other energy products have been properly performing their risk management and price discovery roles,” said Commissioner Lukken.
Newsome noted a similar opinion in his testimony. “To date, we have found that our markets are behaving rationally and that the market participants acted responsibly in their futures and options trading. More specifically, we have seen no evidence to date to suggest that the recent price rises in gasoline futures being traded on our markets are attributable to violative activity,” said Newsome.
Witness testimony is available on the Committee website. A full transcript of the hearing will be available on the Committee website 4-6 weeks following the hearing.
The Honorable Walter L. Lukken, Commissioner, Commodity Futures Trading Commission, Washington D.C.
Mr. James E. Newsome, President and Chief Executive Office, New York Mercantile Exchange, New York, New York