The U.S. Commodities Futures Trading Commission (CFTC) has issued their final definitions of financial products regulated under the Dodd-Frank Act. The rule maintains that forward contracts, which cover delivery of physical goods and, according to Platts, currently constitute most energy market trades are not swaps, which are purely financial exchanges. Examples of forward contracts in energy markets include environmental commodities, peak supply contracts, tolling agreements and many natural gas supply contracts.
The ruling is significant because it keeps much of energy market outside of the jurisdiction of the CFTC, which is expanded by the Dodd-Frank Act. The ruling has been been called “a major victory for the energy industry,” which found the prospect of increased regulation and oversight unappealing. The Dodd-Frank Act emerged in the wake of the 2008 financial crisis and is intended primarily to prevent the financial sector from engaging in investments with systemic risk.
While utilities and trading houses applauded the ruling, CFTC Commissioner Bart Chilton voted against it, siding with some consumer advocacy groups who see the definition as the agency’s next “Enron loophole.”
What do you think of this ruling? What should be the role of the CFTC in energy markets? Is less regulation necessarily a victory for industry?
The need for the stricter regulation of derivatives, particularly purely financial derivatives is manifest. That being said, the CFTC is well advised to avoid new strictures in the physical delivery… Read more »
Joel B. Brown is absolutely on target.