Updated: Sept. 25, 2012 (Initial publication: May 3, 2010)

Sectorial Analysis

II-5.1 : The CME Group challenges the Commodity Futures Trading Commission’s January 26, 2010 proposition to regulate speculation on energy futures, option contracts, and derivatives.

by Alex Raiffe


The Commodity Futures Trading Commission (CFTC) published a proposition to regulate speculation through futures and option contracts on the over-the-counter energy market on January 26, 2010. This proposition is being challenged by the CME Group (the principal American futures market operator), which claims that the CFTC does not have a legal mandate to regulate over-the-counter trading in energy, because such action would have to be authorised by a specific law.




Rapport Sectoriel (Energie / Finance) : Le "CME Group" (principal opérateur de bourse de commerce aux Etats-Unis) conteste la proposition de "Commodity Futures Trading Commission — CFTC" (autorité de tutelle américaine des bourses de commerce) qui vise à réguler la spéculation sur les options et dérivés de l'énergie

La “Commodity Futures Trading Commission — CFTC” (l’autorité de tutelle américaine des bourses de commerce) publie le 26 janvier 2010 un projet visant à réguler la spéculation sur le marché de gré-à-gré énergétique. Cette proposition est vivement contestée par le CME Group (la principale bourse de commerce américaine), qui conteste que la CFTC n’est pas fondée légalement à réguler les échanges de gré-à-gré sur le marché de l’énergie, et qu’une telle compétence ne peut être accordée que par une loi spécifique.


El Grupo CME (operador principal de la bolsa de comercio americano)  desafía la propuesta de la “Commodity Futures Trading Commission – CTFC” (la autoridad de tutela americana de la bolsa de valores) del 26 de enero del 2010 de regular la especulación sobre energías futuras, contratos de opciones y derivados. 

La “Commodity Futures Trading Commission” - CFTC (la autoridad de tutela americana  de la bolsa de valores) publicó el día 26 de enero del 2010 una propuesta para regular la especulación sobre el mercado extrabursátil de energía a través de contratos a futuro y a opciones. Esta propuesta está siendo fuertemente refutada por el Grupo CME (el operador principal de la bolsa de valores americano) quien declara que la CFTC no tiene la competencia legal para regular las operaciones extrabursátiles de energía, ya que tal acción tendría que ser autorizada por una ley específica. 


Sektorialer Bericht (Energie / Finanz): Der CME Group (die Hauptwarenbörse Amerikas) hat sich gegen den Vorschlag der Commodity Futures Trading Commission (CFTC - die amerikanische Aufsichtsbehörde für Warenbörse) geäußert, die Spekulation auf außerbörslichen Energiemärkten  zu regeln.

Die Commodity Futures Trading Commission (CFTC, die amerikanische Aufsichtsbehörde für Warenbörse) hat am 26. Januar 2010 eine Entwurfsarbeit veröffentlicht, in der sie ihre Absicht erklärt, die Spekulation auf außerbörslichen  Energiemärkten  zu regeln. Dieser Entwurf wurde vom CME Group stark kritisiert. Der CME Group, die Hauptwarenbörse in den VS, behauptet, dass die CFTC keinen rechtlichen Auftrag hat, solch eine Reglung einzuführen. Erst ein spezifistiches Gesetz würde es ermöglichen können, laut der CME Group.



Context and Summary

 The Commodity Futures Trading Commission (CFTC) proposed to implement limits on over-the-counter futures and options contract trading and speculation, on January 26, 2010.

This proposition attempts to implement more transparency and less speculation on the energy market. It would regulate trading in such instruments involving natural gas, crude oil, heating oil, and gasoline; notably by implementing position limits.

The proposed regulation is designed to prevent price fluctuations caused by speculation, which have an effect on the entire energy market by causing sharp rises and falls in commodity prices. Price fluctuations in consumer energy prices can sometimes have no basis in reality, and be caused only by unchecked speculation on the markets. This leads to a situation where consumer associations and energy firms have complained that high energy prices are partly due to speculation, which should be controlled in order to reduce consumer prices and lessen corporate and investor uncertainty.

However, the CME group, which is the world’s largest futures and commodity markets operator, sent a letter to the CFTC, bitterly opposing this new regulation.

This letter explains CME’s objections, which are twofold:

Firstly, the United States Congress is currently debating a huge financial reform package, which itself contains provisions for improving transparency of over-the-counter transactions. For this reason, CME requests the CFTC to, at the very least, wait for the final law to be voted in order to see what measures the law will impose on over-the-counter transactions and to refrain from taking regulatory measures before the new legal framework has been unveiled.

Secondly, the CME argues that the CFTC does not have the authority to impose this sort of regulation on over-the-counter transactions, which, by definition, are largely exempt from regulation. The CME’s position is that these transactions are private contracts between parties, in which the regulator has no place.

Brief commentary

The disagreement between CME and the CFTC can essentially be resumed by referencing the eternal debate over whether the law should be interpreted restrictively or broadly.

The CFTC adopts a broad point of view: since it is in charge of regulating transparency and excessive speculation on the futures market, it considers that over-the-counter options contracts and futures, which are traded on markets it regulates, come within its purview. It considers that “energy” is being traded, and that it has a mandate to control speculation on this good, which is having adverse effects on the market.

The CME, on the other hand, adopts a restrictive interpretation of the law. The CME considers that “energy” is not at all being traded. The CME merely serves as a listing for private contracts between private investors, which merely happen to be instruments for speculating on the price of energy. There is no “energy” being bought or sold, and therefore, the CFTC does not have a mandate to regulate such private transactions between private parties.
In a classical conception of Regulation, a power that a law has not explicitly granted the regulator does not exist. However, in a modern, or non-classical, conception, the Law grants the Regulator with a mission: necessity knows no law, and as long as the Regulator’s action is proportional and necessary to fulfil its teleological mission, it is legally justified.

Therefore, in this case, we can say that the claim made by the CME group—that the CFTC is incompetent to regulate over-the-counter transactions of this sort—is irrelevant: the CFTC has been entrusted with the mission of controlling excessive speculation that leads to harmful fluctuations in commodity prices. Clearly, the private contracts involved in over-the-counter energy transactions that are listed by the CME group are an example of speculation that adversely affects the energy market.

Therefore, the CFTC is perfectly justified in applying a regulatory framework to this type of transaction, for it is fulfilling its mission.

However, the financial stakes at hand for the CME group are enormous. One can therefore expect that should the CFTC pursue in its attempt to regulate over-the-counter energy transactions, the affair will end up in a Federal Appeals Court, and perhaps even in the United States Supreme Court.

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