We must do better: CFTC's O'Malia

January 27, 2014 02:25 PM
Commissioner says the CFTC was rushed

Scott O’Malia, commissioner with the Commodity Futures Trading Commission (CFTC), told market participants the agency must do a better job in protecting end users from overly burdensome rules at the Commodity Markets Council’s State of the Industry 2014 Conference in Miami on Monday.

O’Malia acknowledged that the agency was rushed in creating rules to comply with the Dodd-Frank Act and “There are a handful of rules where the Commission has failed to carefully consider the impact to end-users due to the lack of appropriate cost-benefit analysis.”

He pointed to the Commission’s re-proposal of position limits as another example where the agency, “Ignores the realities of end users.”

O’Malia said, “We had an aggressive schedule and we had to get rules in place.”

He added, that in doing so the agency may have failed in its mandate to protect end users from overly burdensome rules, stating that “2014 should be about admitting we got some wrong and fixing it.”

A panel of exchange executives followed O’Malia at the CMC event and discussed the possibility of some of the new regulations creating regulatory arbitrage. CME Group CEO Phupinder Gill regarding the implementation of new rules said, “We confused the living daylights out of everybody, including ourselves.”

Gill suggested that new position limit rules will not allow some end users to hedge. “Rules to make the world more transparent may push people away from exchanges,” Gill said.

Jeff Sprecher, Chairman and CEO of the IntercontinentalExchange, said that the biggest change in compliance from a regulatory perspective is that the burden has shifted from overseeing the execution of trading to clearing. “Today clearing is where [our compliance focus is].”

New Energy

Also at CMC event on Monday, Greg Vesey, VP of Gas Supply and Trading for Chevron, said that the added natural gas production and the associated gas production from shale crude oil production in the United States adds to price stability.

Vesey estimated that the energy space will account for an additional 1.4 million jobs by 2035. He noted that the movement towards liquefied natural gas (LNG) will help turn natural gas into a global Commodity but warns that it won’t happen overnight. Vesey said that despite the huge differential, roughly $4 per mmBtu in the United States and $14 to $16 in Asia, once you account for the cost of liquefication and transportation that basis comes down to around $2.

Vesey said Singapore expects to be a major hub in the trading of LNG and said regarding the outlook for energy that we should, “Stop panicking and let the markets work.”

About the Author

Editor-at-large Daniel P. Collins, who writes a blog, DanCollinsReport, has covered the derivatives industry since 2001. He was an editor at Futures from 2001 through 2012. In that capacity, he covered the managed funds arena, profiled traders and industry giants and helped managed the magazine and website.