Energy Traders Avoid Scrutiny: As Commodities Market Grows, Oversight Is Slight

[DeepModem Mom]

Source: Washington Post, Page One

Energy Traders Avoid Scrutiny
As Commodities Market Grows, Oversight Is Slight
By David Cho
Washington Post Staff Writer
Sunday, October 21, 2007; Page A01

One year ago, a 32-year-old trader at a giant hedge fund named Amaranth held huge sway over the price the country paid for natural gas. Trading on unregulated commodity exchanges, he made risky bets that led to the fund's collapse -- and, according to a congressional investigation, higher gas bills for homeowners.

But as another winter approaches, lawmakers and federal regulators have yet to set up a system to prevent another big fund from cornering a vital commodity market. Called by some insiders the Wild West of Wall Street, commodity trading is a world where many goods that are key to national security or public consumption, such as oil, pork bellies or uranium, are traded with almost no oversight.

Part of the problem is that the regulator, the federal Commodity Futures Trading Commission, has had a hard time keeping up with the sector it oversees. Commodity trading has exploded in complexity and popularity, growing six-fold in trading volume since 2000 -- the year that a handful of giant energy companies, including Enron, successfully lobbied to get Congress to exempt energy markets from government regulation.

Meanwhile CFTC's staffing has dropped to its lowest level in the agency's 33-year history. Its computer systems that monitor trades are outdated. Its leadership has seen frequent turnover. "We are facing flat budgets and exponential growth in the industry," said CFTC Acting Chairman Walter Lukken. "Over the long term this type of budgetary situation is not sustainable."

The House Agriculture Committee is holding a hearing Wednesday on whether to expand the CFTC's authority and budget. In the Senate, Carl M. Levin (D-Mich.) has proposed a bill that would require all energy commodity exchanges to register with the agency and establish trading limits on investors. But similar efforts over the last few years have failed to make it out of committee. And this year, getting the House and Senate to vote on the matter may not be easy, given their busy agendas....

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2007/10/20/AR2007102001203.html?hpid=topnews

[RantinRavin]

1. A 50% capital gains tax

on energy futures tradit profits will put an end to this un up in oil and gas prices.

[puerco-bellies]

2. There needs to be more transparancy in who is trading what.

There has been some changes since I stopped trading commodity's a year ago. I interviewed with a competing company last week and found out that the commodity industry's regulatory body (The National Futures Association) cut the commissions that we could charge. My former firm was sold a little over a month ago. We used to charge some of the highest commissions in the industry and now a broker is limited to only a maximum of $99 a position in and out. I was offered the position, and chatted with some of my old colleagues that jumped ship during our old company's transition. I don't know if I want that kind of stress if I can't generate as much income.

The guys that make hedge fund trades do so at the fund managers behest, and don't really call the shots. There are layers and layers of ownership, and it is behind the scene decisions that determine who can trade what amounts. The individual hedge fund traders are relatively little fish, and can only swim in what ever sized pond they are "stocked". I was a retail broker that traded for individuals. A whole different ballgame.

[DeepModem Mom]

3. Thank you for your post, puerco-bellies -- and an insider view! nt