The Wall Street Transparency and Accountability Act

A Senate bill has been introduced and now passed through committee that might address the ‘dark markets” and ‘speculation” issues that are credited by many with unbalancing the traditional futures market and driving oil prices higher (much higher, perhaps) than would be expected by normal risk hedging. This is seen as being a driver with the high oil prices experienced in 2008 and with current oil prices that appear higher than supply and demand would suggest. U.S. Senator Blanche Lincoln (D-Ark.), chairman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, has introduced the ‘The Wall Street Transparency and Accountability Act” that Senator Lincoln has stated will bring ‘100 percent transparency” to the nation’s financial markets.

‘The days of backroom Wall Street deals are over,” Lincoln said in a press release on the bill. ‘This is the strongest Wall Street reform bill to date and represents a historic opportunity for real reform. America’s consumers and businesses will finally see a financial market that operates in an open and transparent manner.”

The U.S. Senate Agriculture Committee approved the act by a vote of 13-8 with Sens. Grassley (R-IA), Harkin (D-IA), Leahy (D-VT), Conrad (D-ND), Baucus (D-MT), Stabenow (D-MI), Nelson (D-NE) Brown (D-OH), Casey (D-PA), Klobachar (D-MN), Bennet (D-CO), and Gillibrand (D-NY) voting in favor.

Several industry groups, specifically the Petroleum Marketers Association of America and the New England Fuel Institute, have played a leading role in the development of such legislation, and are part of nearly 450 commodity trading reform advocates that make up the Commodity Markets Oversight Coalition. Sean Cota, co-owner and president, Cota & Cota, Inc. and NEFI past president has been particularly active in the processes though regular congressional testimony.

‘As an organization we never really focused much on futures markets until after Katrina when our members asked us to look more closely at the issue. They just didn’t feel that prices were (related to supply and demand),” said Dan Gilligan, PMAA president. ‘We began to question if the futures market was functioning correctly and what the factors were, and then the following year there was a hearing by Senator Dorgan we were sitting in and Michael Greenberger (a professor at the University of Maryland School of Law, where he teaches a course entitled Futures, Options and Derivatives) explained, which we didn’t know, that a substantial portion of the energy trading was excluded from CFTC (Commodity Futures Trading Commission) oversight. I couldn’t believe it was true.”

The primary focus for the industry has been on the fuel oil side, where the pain of higher prices has been particularly severe from both an operational standpoint and a competitive standpoint.

‘A few years ago we were told we were crazy, but now it seems like the tide has turned after the collapse in 2008 of both the stock market and the commodities markets,” said Jim Collura, NEFI’s vice president, public policy and communications. ‘There has been a lot of look back on what had occurred and a lot of analysis of market regulation, and (most) agree that the hands off approach that began in the early 1990s ‘ this idea that markets can regulate themselves ‘ probably does not work on Wall Street and definitely not in the commodities markets.”

While the CFTC has regulatory powers, legislation such as this will allow it greater latitude in rationalizing the oversight of the commodities markets in ways more common with equities. ‘The CFTC has traditionally had a hands-off approach to those markets where they have established principals, which are basically for use as rules of thumb, while the FTC has had a more heavy-handed approach,” Collura said. ‘There are no (similar) limits on insider trading in commodities and (with energy) no limits on speculation like you have with agriculture and a whole host of things that people are now starting to realize.

‘The legislation coming out of the Senate Agriculture Committee is the most aggressive legislation out of any committee we’ve yet seen. And all of the coalition members we’ve been working with are very excited. We have everybody on board from the truckers to the farmers to the airlines