Testimony of

**Michael Greenberger**

Law School Professor

University of Maryland School of Law

500 West Baltimore Street

Baltimore, MD 21201

Before the House Committee on Agriculture

Regarding

**Potential Excessive Speculation in Commodity Markets: The Impact of
Proposed Legislation**

Thursday & Friday, July 10-11, 2008

10:00 a.m.

1300 Longworth House Office Building

**Introduction**

My name is Michael Greenberger.

I want to thank the Committee for inviting me to testify on the
important issue that is the subject of today's hearings.

After 25 years in private legal practice, I served as the Director of
the Division of Trading and Markets ("T&M") at the Commodity Futures
Trading Commission ("CFTC") from September 1997 to September 1999. In
that capacity, I supervised approximately 135 CFTC personnel in CFTC
offices in DC, New York, Chicago, and Minneapolis, including lawyers and
accountants who were engaged in overseeing the Nation's futures
exchanges. During my tenure at the CFTC, I worked extensively on, *inter
alia*, regulatory issues concerning exchange traded energy derivatives,
the legal status of over-the-counter ("OTC") energy derivatives, and the
CFTC authorization of trading of foreign exchange derivative products on
computer terminals in the United States.

While at the CFTC, I also served on the Steering Committee of the
President's Working Group on Financial Markets ("PWG"). In that
capacity, I drafted, or oversaw the drafting of, portions of the April
1999 PWG Report entitled "Hedge Funds, Leverage, and the Lessons of
Long-Term Capital Management," which recommended to Congress regulatory
actions to be taken in the wake of the near collapse of the Long Term
Capital Management (LTCM) hedge fund, including Appendix C to that
report which outlined the CFTC's role in responding to that near
collapse. As a member of the International Organization of Securities
Commissions' ("IOSCO") Hedge Fund Task Force, I also participated in the
drafting of the November 1999 report of IOSCO's Technical Committee
relating to the LTCM episode: "Hedge Funds and Other Highly Leveraged
Institutions."

After a two year stint between 1999 and 2001 as the Principal Deputy
Associate Attorney General in the U.S. Department of Justice, I began
service as a Professor at the University of Maryland School of Law. At
the law school, I have, *inter alia*, focused my attention on futures
and OTC derivatives trading, including academic writing and speaking on
these subjects. I currently teach a course that I designed entitled
"Futures, Options, and Derivatives."

The question whether there has been excessive speculation of U.S. energy
futures markets in general, and futures based on U.S. delivered crude
oil contracts specifically, has been the subject of many hearings. I
have previously testified at six of those hearings, the most recent held
on June 24, 2008 before the United States Senate Committee on Homeland
Security & Government Affairs. To put the issue of this Committee's
hearings in context, I summarize and update the points I made at that
hearing immediately below.

> **Summary and Update of Prior Testimony**

One of the fundamental purposes of futures contracts is to provide price
discovery in the "cash" or "spot" markets.[^1] Those selling or buying
commodities in the "spot" markets rely on futures prices to judge
amounts to charge or pay for the delivery of a commodity.[^2] Since
their creation in the agricultural context decades ago, it has been
widely understood that, unless properly regulated, futures markets are
easily subject to distorting the economic fundamentals of price
discovery (*i.e.*, cause the paying of unnecessarily higher or lower
prices) through excessive speculation, fraud, or manipulation.[^3]

As the 1935 Report of this Committee stated: "The fundamental purpose of
the measure \[i.e., what was to become the Commodity Exchange Act of
1936 ("CEA")\] is to insure fair practice and honest dealing on the
commodity exchanges and to provide a measure of control over those forms
of speculative activity which too often demoralize the markets to the
injury of producers and consumers and the exchanges themselves."[^4]

Indeed, President Roosevelt, when introducing what became the CEA said:
"\[I\]t should be our national policy to restrict, as far as possible,
the use of these exchanges for purely speculative operations."[^5] In
this regard, this Committee then stated: "This bill authorizes the
Commission . . . to fix limitations upon purely speculative trades . .
."[^6]

The CEA has long been judged to effectively prevent excessive
speculation and manipulation. Accordingly, prior to the passage of the
Commodity Futures Modernization Act of 2000 ("CFMA"), "all futures
activity \[was\] confined by law (and eventually to criminal activity)
to \[CFTC regulated\] exchanges alone."[^7] At the behest of Enron, the
CFMA authorized the "stunning"[^8] change to the CEA to allow the option
of trading energy commodities on deregulated trading platforms, *i.e.*,
exchanges exempt from CFTC contract market registration requirements,
thereby rejecting the contrary 1999 advice of the President's Working
Group on Financial Markets, which included the Secretary of the
Treasury, the Chairman of the Federal Reserve Board, and the Chairmen of
the SEC and CFTC. [^9] This exemption from contract market regulation is
called the "Enron Loophole."

Two prominent and detailed bipartisan studies by the Permanent
Subcommittee on Investigations' ("PSI")[^10] staff concluded that large
financial institutions and wealthy investors had needlessly driven up
the price of energy commodities over what economic fundamentals dictate,
adding, for example, what the PSI estimated to be @ \$20-\$25 per barrel
to the price of a barrel of crude oil.[^11] At the time of that
estimate, the price of crude oil had reached a then record high of \$77.
The conclusion that excessive speculation has added a considerable
premium to energy products has been corroborated by many experts
on[^12], and observers of, these markets.[^13]

The PSI staff and others have identified the Intercontinental Exchange
("ICE") of Atlanta, Georgia, as an unregulated trading facility upon
which a considerable amount of exempt U.S. energy futures trading is
done.[^14] For purposes of facilitating exempt natural gas futures, ICE
is deemed a U.S. "exempt commercial market" under the Enron
Loophole.[^15] For purposes of its facilitating U.S. WTI crude oil
futures on U.S. trading terminals, the CFTC, by informal staff action,
considers ICE, because of its wholly owned subsidiary, ICE Futures
Europe, to be a U.K. entity not subject to direct CFTC regulation even
though ICE maintains U.S. headquarters and U.S. trading infrastructure
(*i.e*., terminals and servers), facilitating, *inter alia*, @ 30% of
trades in U.S. WTI futures trades.[^16]

The Dubai Mercantile Exchange, in affiliation with NYMEX, a U.S.
exchange, has also been granted permission to trade the U.S. delivered
WTI contract on U.S. terminals, but is, by virtue of a CFTC no action
letter, to be regulated directly by the Dubai Financial Service
Authority ("DFSA").[^17] NYMEX describes itself as "a founder and has
ownership share in \[DME\] and provides clearing services for that
exchange." [^18]

NYMEX itself, the U.S. premier regulated energy futures contract market
capturing the overwhelming share, *e.g*., of the U.S. delivered WTI
futures market, has announced that it has applied to the United
Kingdom's Financial Services Authority to have a NYMEX London trading
platform registered with the that British agency,[^19] after which NYMEX
will apply for the kind of foreign board of trade no action relief that
has already been granted to ICE and DME. Providing NYMEX's London
trading platform with this kind of no action relief might very well
convert full U.S. regulation of the most important U.S. crude oil
futures contracts to considerable U.K. oversight.[^20] These staff
informal action letters, effectuating the exemptions for "foreign" owned
U.S. trading terminals, by their own terms make it clear that they may
be instantly revoked by the CFTC.[^21]

One final gap in the oversight of excessive speculation in the U.S.
crude oil (and agricultural) markets has been illuminated by the
testimony of Michael W. Masters, Managing Member of Masters Capital
Management, LLC, at recent May 20 and June 24 hearings before the Senate
Committee on Homeland Security and Government Affairs.[^22] Mr. Masters
demonstrated that large financial institutions, such as investment banks
and hedge funds, which were "hedging" their off exchange futures
transactions on energy and agricultural prices on U.S. regulated
exchanges, were being treated by NYMEX, for example, and the CFTC as
"commercial interests," rather than as the speculators they clearly
are.[^23] By lumping large financial institutions with traditional
commercial oil dealers (or farmers)[^24] even fully regulated U.S.
exchanges are not applying traditional speculation limits to the
transactions engaged in by these speculative interests.[^25] Mr. Masters
has demonstrated that a significant percentage of the trades in WTI
futures, for example, were controlled by non-commercial interests.[^26]
These exemptions from speculation limits for large financial
institutions hedging off-exchange "swaps" transactions emanate from a
CFTC letter issued on October 8, 1991[^27] and they have continued to
present day.[^28]

Again, while the principal focus to date has been on skyrocketing energy
prices, Mr. Masters' testimony, aided by a widely discussed cover story
in the March 31, 2008 issue of *Barron's*,[^29] has made clear that the
categorization of swaps dealers outside of speculative controls even on
U.S. regulated contract markets has been a cause of great volatility in
food prices, as well as in the energy markets.

Many parties are now urging this Congress to close the Enron,
London/Dubai, and Swaps Dealers Loopholes. On June 18, 2008, the Food
Conservation and Energy Act of 2008[^30] (the "Farm Bill") was enacted
into law by a Congressional override of President Bush's veto. Title
XIII of the Farm Bill is the CFTC Reauthorization Act of 2008, which, in
turn, includes a provision that was intended to close the Enron
Loophole.[^31] This provision, while a good start, did not return to the
status quo prior to the passage of the Enron Loophole: i.e., it did not
bring *all* energy futures contracts within the U.S. futures regulatory
format. Rather, the Farm Bill amendment requires the CFTC "at its
discretion" to prove on a contract-by-contract basis through
administrative proceedings governed by the notice and comment provisions
of the Administrative Procedure Act[^32] that an *individual* energy
contract should be regulated if the CFTC can prove that the contract
"serve\[s\] a significant price discovery function" in order to detect
and prevent excessive speculation and manipulation.[^33] The Farm Bill
Amendment affords the CFTC 15 months after enactment to implement that
re-regulation process specified therein.[^34]

The CFTC has publicly stated that it intends to apply the new
legislation to only one of ICE's many[^35] unregulated ICE energy
futures contract, *i.e*., only ICE's Henry Hub natural gas futures
contract would be removed from the Enron Loophole protection and become
fully regulated.[^36] Thus, by this CFTC pronouncement, it now seems
that no crude oil, gasoline, and heating oil futures contracts will be
covered by the new legislation---not even the multi-billion
agricultural/commodity index futures funds premised upon the prices of
U.S. energy and agricultural commodities about which, *inter alia*,
Michael Masters has testified are destabilizing the economic
fundamentals of the agriculture and energy markets.

The CFTC has also made it clear that the Farm Bill amendment will not
cover any *U.S.* futures contracts relating to the price of *U.S.*
delivered commodities traded on the *U.S.* terminals of foreign
exchanges operating pursuant to CFTC staff "no action" letters. As
mentioned above, the Intercontinental Exchange ("ICE") of Atlanta,
Georgia, for purposes of facilitating U.S. delivered WTI crude oil
futures, is considered by the CFTC, through an informal staff no action
letter, to be a U.K. entity not subject to direct CFTC regulation even
though ICE maintains U.S. headquarters and trading infrastructure,
facilitating, *inter alia*, @ 30% of trades in U.S. WTI futures of its
wholly owned the London subsidiary on which the no action permission is
based. Moreover, the Dubai Mercantile Exchange ("DME"), in affiliation
with NYMEX, a U.S. exchange, has also been granted permission to trade
the U.S. delivered WTI contract on U.S. terminals, but is, by virtue of
a CFTC no action letter, directly regulated by the Dubai Financial
Service Authority ("DFSA"). Again, even though the plain language of the
Farm Bill does not exempt contract markets engaged in the U.S. trading
of futures premised upon U.S. delivered commodities, the CFTC will not
use the Farm Bill amendment to close the "London/Dubai" Loophole.

**Congress Should Insist Upon Full Market Transparency to Ensure That
Excessive Speculation Is Not Overwhelming Crude Oil Futures Trading**

As the Committee knows, there is debate over whether the U.S. crude oil
futures market is overrun by excessive speculation. As I have said, my
own view is that those independent observers who understand those
markets, by and large, concur that the markets have come unhinged from
supply/demand fundamentals in a manner that makes them no longer useable
by the physical hedgers who find prices to be "locked in" too volatile
and distant from market fundamentals.[^37]

I would argue, however, that even if this Committee has doubts about
whether excessive speculation or more serious malpractices are occurring
in these markets and thereby unnecessarily driving up the price of crude
oil, then those very doubts argue for legislation that makes these
markets fully transparent. If all of these markets (e.g., OTC, foreign
board of trade U.S. trading terminals for futures dependent on U.S.
commodities, and swaps dealers) were required to execute trades on U.S.
designated contract markets or designated transaction execution
facilities, the real time and constant reporting to both the CFTC and to
the market's own self regulatory observers, would make it indisputably
clear whether the markets are functioning solely on economic
fundamentals; or whether excessive speculation is placing an unnecessary
financial burden on them and the American energy consuming public.

As it is, those who reject transparency are those who ask the U.S.
energy consumer to accept on blind faith (and I would argue in the face
of substantial and reliable data pointing in the opposite direction)
that these markets are functioning smoothly.

**A Prompt Return to the Time Tested Futures Regulatory Format Predating
the Enron Loophole Will Create Much Needed Crude Oil Market
Transparency**

Whatever form legislation takes to increase transparency in all U.S.
traded energy futures, I would urge that the following principles be
embedded therein to reassure the American energy consuming public that
the price of crude oil is tied to market fundamentals rather than
excessive speculation.

**[Completely Close the Enron Loophole]{.underline}**. While the Farm
Bill amendment was a good start, the radically rising price of crude oil
even in the last few weeks now augurs for returning all U.S. energy
futures trading to the safe harbor of fully transparent U.S. regulated
contract markets. A simple amendment to existing law would redefine an
"exempt commodity" as a commodity that does not include an agricultural
or "*energy* commodity," thereby bringing all energy futures, including
energy swaps based on the price of energy commodities, within the CEA's
regulated contract market trading requirement. An energy commodity
should include traditional energy products, *inter alia*, crude oil,
gasoline, diesel fuel, heating oil, propane, electricity, and natural
gas, as well as metals which have also seen a drastic run up in price.
The result of this legislation would return U.S. energy futures trading
to the same status as U.S. agricultural trading, which must be conducted
on the U.S. registered contract market.

**[U. S. Based Energy Futures Contracts Traded on U.S. Terminals Should
Be Traded on U.S. Regulated Exchanges]{.underline}**. To address the
concerns about the "London/Dubai" Loophole, any futures contract
premised on the price of U.S. delivered energy futures and traded on
U.S. trading terminals should be required to be traded on U. S.
registered contract markets. This requirement would not affect the
overwhelming number of foreign exchanges now trading within the U.S. who
have continued to limit their trading to foreign futures contracts.

**[Grace Periods]{.underline}**. Reasonable grace periods should be
provided in this kind of legislation to accommodate conversion of energy
futures trading not now under U.S. oversight. A grace period no longer
than six months should accommodate this conversion.

**[Aggregated Speculation Limits for Non-Commercial
Hedgers]{.underline}**. Consideration should also be given to requiring
the CFTC to establish uniform speculation limits for non-commercial
futures transactions involving the U.S. trading of energy futures
contracts premised upon the price of U.S. delivered energy commodities.
This would require the CFTC to "fix limits on the aggregate number of
positions which may be held by any person" for each month and in *all*
markets under CFTC jurisdiction. Under the existing regulatory regime,
speculation limits are only applied by each contract market, and
"aggregate positions" are never imposed. These aggregated limits would
prevent a trader from spreading speculation over a host of markets,
thereby accumulating a disproportionately large share of an energy
market while satisfying each exchange's separate limits. The aggregated
limits should not be applied to "bona fide hedging transactions"
involving the trading of energy futures contracts by those having a true
commercial interest in buying or selling the underlying commodity.

Legislation meeting most or all of the above listed criteria include
H.R. 6341, introduced by Congressman Van Hollen and Congresswoman
DeLauro, requiring all energy futures contracts executed in the U.S. to
be traded on U.S. regulated contract markets, thereby building on the
Farm Bill amendment's closure of the Enron Loophole by returning *all*
energy futures trading, including the energy swaps market, to where it
was immediately prior to that provision's passage, i.e., on regulated
exchanges; and that legislation expressly requires the trading on U.S.
terminals of futures contracts premised upon U.S. delivered energy
commodities to be similarly subject to a U.S. regulated contract market.
The latter provision would close the "London/Dubai" Loophole.

Congressman Stupak has introduced H.R. 6330, which mirrors in function
the Van Hollen/DeLauro legislation, but, in what I refer to as a "belt
and suspenders" approach, specifically brings energy swaps transactions
into the regulated futures environment; nullifies after a grace period
all foreign board of trade no action letters; imposes CTFC imposed
aggregated speculation limits on non-commercial interests for energy
futures trading; requires speculation limits to be imposed on all
traders except those who are hedging commercial interests related to the
underlying commodity (thereby eliminating the hedge exemption from
speculation limits for swaps dealers); and provides strict Congressional
oversight of any exemptions provided to energy futures trading from the
contract market requirements of the legislation.

Senator Nelson of Florida, with Senator Obama as a co-sponsor, has
introduced S. 3134, which is similar to that portion of H.R. 6341
requiring all energy futures contracts to be traded on regulated
exchanges.[^38] Senators Cantwell and Snowe have introduced S. 3122,
which mirrors that portion of H.R. 6341 directed to closing the
London/Dubai Loophole by requiring all trading of futures based on U.S.
delivered energy commodity on U.S. platforms to be governed fully and
directly by U.S. futures law.[^39] S. 3205, introduced by Senator
Cantwell, is the Senate version of Congressman Stupak's H.R. 6330.

Also worthy of consideration are Senators Lieberman and Collins
legislative options designed to undercut excessive speculation in these
markets through direct and aggregated controls on non-commercial futures
traders. One of their proposals would require the CFTC to establish firm
and aggregated speculation position limits on all U.S. speculative
futures trading no matter where the platform on which the trading is
geographically located.[^40]

**There Are No Legal Restraints to Barring the "Foreign" Impact of
Manipulation on U.S. Markets**

Arguments have been advanced that there are legal impediments to the
CFTC applying U.S. regulatory protections on Foreign Boards of Trade
which bring their trading terminals to the U.S. If that argument were
correct, it would be an impediment to much of the legislation cited
above requiring the CFTC to do just that. These arguments are premised
upon Section 4 (b) of the Commodity Exchange Act (CEA). Section 4 (b)
provides in part:

> No rule or regulation may be adopted by the Commission under this
> subsection that (1) requires Commission approval of any contract,
> rule, regulation, or action of any foreign board of trade, exchange,
> or market, or clearinghouse for such board of trade, exchange, or
> market, or (2) governs in any way any rule or contract term or action
> of any foreign board of trade, exchange, or market, or clearinghouse
> for such board of trade, exchange, or market. [^41]

However, this clause has been construed only to mean that the CFTC does
not have jurisdiction over transactions conducted by *foreign* persons
in a *foreign* country on a *foreign* board of trade.[^42] *Kleinberg v.
Bear Stearns*,[^43] dealt with a situation where London traders were
committing acts of fraud on a London exchange.[^44] In that case, the
Court held that the CFTC did not have enforcement jurisdiction, but
explained, "It has been consistently held, at least implicitly, that
CFTC may regulate and prosecute those who practice fraud in the United
States in connection with commodities trading on foreign
exchanges."[^45]

To similar effect is the recent case of *Mak v. Wocom Commodities*,[^46]
concerning a Hong Kong resident placing futures trades with the
defendant commodity brokers, both of which are Hong Kong corporations
(Wocom).[^47] The claims were denied because they were not sufficiently
particularized.[^48] However, the court stated that jurisdiction would
have been extended if it had been clearly shown that there was
"particularized harm to our domestic markets."[^49] With ICE we
currently have trading by U.S. customers in U.S. denominated currency on
U.S. terminals in the foremost benchmark U.S. crude oil futures
contracts with substantial evidence demonstrating "particularized harm
to our domestic markets."

Indeed these cases are consistent with a fundamental tenet of federal
financial enforcement jurisprudence that federal financial regulatory
jurisdiction extends even to wholly foreign transactions when domestic
financial markets suffer "from the effects of \[an\] improper foreign
transaction\[.\]"[^50] The leading commentators on U.S. derivatives
regulation have, accordingly stated: "\[E\]ven without substantial
activity in the United States, jurisdiction will exist when conduct
abroad has a substantial affect upon U.S. markets and U.S.
investors."[^51]

Confirmation of this broad sweep of U.S. jurisdiction to address
overseas malpractices significantly impacting U.S. markets is evidenced
most clearly by the *Sumitomo* case.[^52] In that case, the CFTC's
enforcement division reached a settlement agreement with a Japanese
corporation upon determining that the Japanese head copper trader of the
Sumitomo Corporation manipulated the price of U.S. copper almost
exclusively through trading done in London on the London Metals
Exchange.[^53] The CFTC imposed \$150 million in fines and
restitution.[^54] Only a small portion of the trading was done in the
U.S. and the London Metals Exchange contact with the U.S. was limited to
a U.S. warehouse.[^55] Despite these limited U.S. contacts, "the penalty
\[assessed was then\] *the largest ever levied by a U.S. Government
agency*," and it was widely recognized that the settlement indicated
that "manipulation of any commodity traded in the \[U.S.\] could be the
subject of a C.F.T.C. action, *even if no acts were committed in this
country."*[^56]

Clearly, then, trading done on trading platforms within the U.S. would
be subject to full CFTC regulatory authority. The fact that ICE is
headquartered in Atlanta with its trade matching engines in Chicago and
it controls through its U.S. terminals over 30% of the lead
U.S.-delivered petroleum contract only makes the jurisdictional question
that much easier. The same is true of the Dubai exchange that partners
with U.S.-based NYMEX to trade WTI contracts on U.S. terminals; and of
the prospect of NYMEX opening a London trading platform for its energy
futures products, but escaping U.S. regulation for that trading through
a staff no action letter treating NYMEX as if it were a U.K. entity.

Even more important, *Sumitomo* and its progeny are an answer to those
many threats levied by large U.S. financial institutions that assert, if
their trading on "foreign" trading terminals located in the U.S. is
regulated, they will simply move that trading abroad. To be clear, any
trading done in the U.S. on foreign exchanges is *a fortiori* covered by
the applicable U.S. commodity laws.[^57] So when the threat is made that
the U.S. institutions will trade abroad, it means that it will be done
completely outside of the sovereign U.S. However, the *Sumitomo* line of
cases make clear that the CFTC, and for that matter, United States
Department of Justice for purposes of related criminal prosecution,[^58]
can enforce violations of U.S. laws abroad if U.S. markets are
significantly impacted by the wrongdoing in foreign countries. In short,
speculators cannot escape the reach of U.S. civil and criminal law if
they cause price distortions in U.S. commodity markets.

Moreover, as I have testified elsewhere, no exchange, wherever located,
can develop liquidity in and maximize profits from trading U.S.
delivered futures products without having a substantial U.S.
presence.[^59] This is evidenced by the 18 CFTC staff no action letters
issued to foreign exchanges from all over the world allowing the
placement of trading terminals in the U.S. [^60] In short, the threat
that trading in U.S. delivered commodities will be done exclusively
abroad is idle when confronted by both economic and legal realities.

**The Intercontinental Exchange Cannot Fairly Be Deemed British for
Purposes of Trading U.S. Petroleum Futures in U.S. Dollars on U.S.
Trading Terminals with U.S. Trading Engines**

Of course, all of the above jurisdictional analysis assumes that ICE
(and DME) are "foreign" boards of trade. While ICE has a London wholly
owned subsidiary, that office is controlled by ICE's headquarters in
Atlanta; ICE's trading engines are in Chicago; it is trading over 30% of
the U.S. premier crude oil futures contract in U.S. denominated
currency. ICE's non-petroleum products, i.e., natural gas futures
contracts, are clearly traded within U.S. jurisdiction and are subject
to re-regulation under U.S. law by virtue of the Farm Bill's "End the
Enron Loophole" provision.[^61] ICE also owns a fully regulated U.S.
exchange: formerly the New York Board of Trade (NYBOT); now ICE Futures
U.S. It defies all logic that such an exchange can be called "foreign"
based on the name given to its wholly owned subsidiary (ICE Futures
Europe) and maintaining a London office that could as easily be operated
out within the U.S.

The same is also true of the Dubai Mercantile Exchange. Its principal
partner is the New York Mercantile Exchange (NYMEX), a U.S. regulated
exchange and a U.S. entity. The President of NYMEX sits on DME's board.
DME has authority to trade the U.S. delivered WTI contract on trading
terminals in the U.S. Under these circumstances, DME is clearly a U.S.
exchange

The illogic of the FBOT staff no action process is highlighted by NYMEX,
a U.S. regulated exchange headquartered in the U.S., establishing a
London futures trading platform under the United Kingdom's regulatory
regime and then applying for an FBOT staff no action letter to allow
trading within the U.S. on its NYMEX London platform. NYMEX will then
have converted itself from a U.S. entity into a British entity for
purposes of U.S. trades on the platform with the principal regulation of
those trades in the hands of the United Kingdom.

And, why should NYMEX not do this? It is following precisely the ICE
template. However, the proposal defies all good sense, and, even worse,
it will add darkness to the trading markets that affect the price of
crude oil, gasoline, and heating oil within the U.S.

Under the ICE, DME and London/NYMEX scenarios, each of these exchanges
are clearly U.S. exchanges and their trading terminals should be
regulated as U.S. regulated contract markets. Moreover, as U.S. contract
markets, they and the traders on those exchanges (no matter whether they
trade in the U.S. or abroad) are fully subject to both CFTC civil
jurisdiction and United States federal criminal statutes.[^62] For
example, in *Tamari v. Bache*[^63] the Seventh Circuit held there was
federal jurisdiction to enforce the Commodity Exchange Act, even though
the trader and the trader's broker accused of fraud were both situated
in Lebanon,[^64] by stating: "that Congress intended to proscribe
fraudulent conduct associated with any commodity future transactions
executed on a domestic exchange, regardless of the location of the
agents that facilitate the trading" and thus there was
jurisdiction.[^65]

**The CFTC Has Consistently Viewed Foreign Exchanges Trading on U.S.
Terminals Subject to Full U.S. Regulation**

It has been shown immediately above, that as a legal matter there is no
bar either within the CEA as now drafted nor within the case law that
prevents the CFTC from gaining full regulatory control, over any futures
trading done in the U.S Even if one were to assume that ICE, for
example, is truly a foreign board of trade, Section 4 (b) only bars
regulation of trading done by foreign citizens in foreign countries
trading foreign commodities on foreign exchanges when such trading does
not cause substantial dysfunctions to U.S. markets. Below it is shown
that this well established law has governed the CFTC's FBOT staff no
action process since its inception.

The staff no action process initiated in 1999 was not developed under a
view that, pursuant to Section 4 (b), the CFTC could not regulate
foreign exchanges who wished to put trading terminals in the U.S. To the
contrary, the history is clear that those foreign exchanges themselves
recognized that, in the absence of an exemption under Section 4 (c) of
the CEA,[^66] they would have to fully register as a U.S. contract
market. As their plain language made clear when they were first issued
in 1999, the FBOT no action letters originated from a rulemaking
proceeding that, by its very terms, indicated that permission to put
terminals in the U.S. derived from Section 4 (c)'s exemption from full
regulation and not from Section 4 (b)'s absolute bar against foreign
regulation.[^67] It must be remembered that Section 4 (b) does not
countenance exceptions to its general restriction. The no action letters
include a myriad of regulatory conditions on the foreign boards of trade
that are completely inconsistent with the absolute bar within Section 4
(b).[^68]

If there were any doubt about the above analysis, it was belied by the
actions of the CFTC on June 17, 2008 and July 8, 2008, when it added
four new conditions to the existing ICE Futures Europe and Dubai
Mercantile Exchange no action letters.[^69] While these additional
conditions have only been applied to ICE and DME, Acting Chairman
Lukken's related comments show that the CFTC has the authority to
incorporate them in the now outstanding 14 other FBOT staff no action
letters affecting every foreign board of trade with U.S. terminals, as
well as any FBOT that seeks an exemption from U.S. direct regulation in
the future.[^70]

If Section 4 (b)'s absolute prohibition were applicable to FBOTs with
U.S. terminals, as some have argued as a predicate to limiting
legislative or administrative action in this area, how could the CFTC
add these new conditions to the outstanding no action letters? Those new
conditions, *inter alia*, require large trader reporting and the
imposition of speculation limits.[^71] The failure of the FBOTs to
comply could result in the revocation of the no action letters, thereby
requiring each FBOT to register as a fully regulated U.S. contract
market.[^72]

Those who would attempt to limit Congressional and regulatory controls
on ICE, DME, and NYMEX/London have also relied upon a November 2006
policy statement issued by the CFTC on the FBOT no action letter
process.[^73] Much is made about the fact that Section 4 (b) is cited
and quoted therein. Whatever the purpose of that 4 (b) reference, the
assertion that 4 (b) presents an absolute bar is belied by the following
within that policy statement:

> \[i\]n the absence of no-action relief, a board of trade, exchange or
> market that permits direct access by U.S. persons might be subject to
> Commission action for violation of, among other provisions, section
> 4(a) of the CEA, if it were not found to qualify for the exclusion
> from the DCM designation or DTEF registration requirement.[^74]

In short, the failure to gain no action relief would mean that, in the
absence of registration as a fully regulated contract market, the FBOT
would have to remove its U.S. terminals according to the CFTC's own
analysis. As the CFTC expressly stated in its June17, 2008 letter to ICE
imposing the new conditions on its no action status, if ICE satisfies
the four new conditions, the CFTC "will not recommend that the
Commission institute enforcement action against \[ICE\] based upon
\[ICE's\] failure to seek contract market designation or registration as
a DTEF under Sections 5 and 5a of the Act."

Again, the action of the CFTC adding further conditions to the ICE no
action letter, including large trader reporting and speculation limits,
upon pain of an enforcement proceeding based on the failure to register
as a U.S. regulated contract market, clearly demonstrates that the CFTC
meant what it said in the above quoted reference from its 2006 policy
statement, it has broad powers to require a "foreign" exchange to fully
register in the U.S. or terminate its presence in this country.[^75]
Section 4 (b) provides no impediment to those powers.

**Efforts Designed to Oversee and Improve the Foreign Regulation of U.S.
Delivered Futures on U.S. Terminals May Not Effectively Close the
"London/Dubai" Loophole**

Congressman Etheridge of this Committee[^76] and Senators Durbin and
Levin in the Senate have introduced legislation which ratchets up the
existing CFTC oversight of foreign boards of trade energy futures
trading on U.S. trading terminals ("FBOTs"). That legislation, while a
major improvement over the present regulatory environment, still leaves
primary and direct enforcement and oversight in the hands of the foreign
regulator, *e.g*., the U.K.'s Financial Services Authority in the case
of ICE; or the Dubai Financial Services Authority in the case of the
DME.

It is my understanding the this legislation deferring to the primacy of
foreign regulators to oversee U.S. terminals operated by FBOTs derives
from a concern that section 4 (b) of the Act bars U.S. regulation of
even those FBOTs in the U.S.[^77] As has been shown above,[^78] section
4 (b), whatever it means, is an absolute bar to any U.S.
regulation,[^79] whereas H. 6334 does ratchet up U.S. regulation of the
foreign exchange. Moreover, as shown above,[^80] section 4 (b)'s bar
only applies to foreign trades on foreign exchanges of foreign
commodities not having a significant impact on U.S. markets. Therefore,
policy concerns about section 4 (b) should not govern the regulation of
FBOT terminals in the U.S., especially when those terminals trade U.S.
delivered futures contracts; and even more so when the FBOTs
institutional ties are so closely affiliated with the U.S. and U.S.
institutions that the FBOT loses all claim to foreign status.

Again, legislation such as that proposed by Congressman Etheridge, is a
major improvement of what had been the CFTC's oversight of FBOTs' U.S.
terminals.

This kind of legislation affords the CFTC the authority to enforce the
prohibitions of section 9 of the Act, concerning criminal penalties,
including anti-manipulation prohibitions therein, and "to limit, reduce,
or liquidate any position" on the FBOT in aid of preventing, *inter
alia*, manipulation and excessive speculation enforcement.[^81]
Imposition of restrictions on the FBOT, however, must be preceded by
consultation with the FBOTs foreign regulator.[^82]

The CFTC "may apply such recordkeeping requirements \[to the FBOT\] as
the Commission determines are necessary,"[^83] and before the CFTC
exempts an FBOT from full U.S. contract market regulatory requirements,
it must ensure that the FBOT operating the U.S. terminals "appl\[y\]
comparable principles" to those of the CFTC for "daily publication of
trading information and position limits or accountability levels for
speculators" and provides to the CFTC "the information that the \[CFTC\]
determines necessary to publish a Commitment of Traders report" for U.S
regulated contract markets.[^84]

Legislation of the kind introduced by Congressman Etheridge also
requires the CFTC to conduct a review of FBOT no action status for
existing FBOTs between the first anniversary of the passage of S. 3130
and one and one half years thereafter to ensure FBOT compliance with the
new statutory requirements imposed by this legislation.[^85]

In any event, recent actions taken by the CFTC to increase regulation of
ICE and DME may place the requirements of Congressman Etheridge's bill
in a new context.

**CFTC's New Regulatory Requirements for Foreign Boards of Trade with
U.S. Terminals**

For at least two years prior to May 20, 2008, the CFTC had repeatedly
assured Congress and market participants that the dramatic rise in crude
oil, natural gas, gasoline, and heating oil was caused exclusively by
supply/demand market fundamentals.[^86] The CFTC had based its
conclusions on its "exhaustive" research of all relevant market
data.[^87]

Indeed, as recently as May 20, 2008, before the full Senate Homeland
Security and Government Affairs Committee, the CFTC's Mr. Harris,
testified: "\[A\]ll the data modeling and analysis we have done to date
indicates there is little economic evidence to demonstrate that prices
are being systematically driven by speculators in these \[agriculture
and energy\] markets\.... \[O\]ur *comprehensive* analysis of the
*actual* position data of these traders fails to support \[the\]
contention" that there is excessive speculation or manipulation.[^88]
Rather, he said "prices are being driven by powerful economic
fundamental forces and the laws of supply demand."[^89]

In a rather dramatic about face, the CFTC suddenly announced on May 29,
2008 (or just nine days after Mr. Harris testimony) that that agency is
in the midst of an investigation into the crude oil energy markets[^90]
and it will now begin to collect substantial amounts of new data to
determine what is undergirding high oil prices.[^91] This reversal in
course is almost certainly the product of intense pressure placed on the
CFTC by Congress to ensure that excessive speculative activity is not
being conducted on the principal market over which the CFTC has declined
primary responsibility, i.e., trading done on ICE and on ICE's U.S.
terminals.[^92]

As crude oil and gas prices continued to spike even after the CFTC's May
29, 2008, announcement, the pressure on the CFTC did not let up. Thus,
by June 17, 2008, the CFTC once again increased its pressure on ICE.

In a dramatic June 17, 2008 letter to ICE, the CFTC Director of Market
Oversight referenced the fact that ICE had moved its trading platform
from London "to the ICE Platform operated by \[ICE\] in Atlanta,
Georgia," and that that U.S. platform was now trading three U.S.
delivered energy futures products (WTI, heating oil, and gasoline) "each
of which is cash-settled on the price of physically-settled contracts
traded on NYMEX."[^93] Most importantly, the June 17 letter to ICE then
stated:

> A foreign board of trade listing for trading a contract which settles
> on the price of a contract traded on a CFTC-regulated exchange *raises
> very serious concerns* for the Commission. . . . In the absence of
> preventive measures at \[ICE\], this circumstance *could compromise
> the \[CFTC's\] ability to carry out its market surveillance
> responsibilities*, as well as the integrity of prices established on
> CFTC-regulated exchanges. . .\[T\]he division retains the authority to
> condition further, modify, suspend, terminate, or otherwise restrict
> the terms of the no-action relief provided herein, in its
> discretion.[^94]

In order to address the CFTC's "very serious concerns" that it had
"compromise\[d\] \[its own\] ability to carry out its market
surveillance responsibilities, as well as the integrity of the prices
established" thereon, the letter then outlined four new conditions that
it imposed upon ICE: "position limits or position accountability levels
(including related hedge exemption provisions) as adopted by" U.S.
regulated contract markets; quarterly reports of any member exceeding
those levels and limits; publication of daily trading information
comparable to that required of U.S. contract markets; daily reporting of
"large trader positions" as provided by U.S. regulated markets.[^95]

ICE was given 120 days to come into compliance with the new CFTC
conditions.[^96] The CFTC acknowledged that the new ICE rules would have
to be approved by the FSA.[^97] The June 17 letter to ICE concludes by
stating that only if ICE complies with the conditions outlined therein
can ICE be assured that the CFTC will "not recommend that the Commission
institute enforcement action against \[ICE\] or its members" based on
ICE's failure to register as a U.S. regulated contract market.[^98]

On June 17, 2008, the day that that letter to ICE was released, CFTC
Acting Chairman Lukken is reported to have told the Senate oversight
committee: \"The CFTC will also require other foreign exchanges that
seek such direct access to provide the CFTC with comparable large trader
reports and to impose comparable position and accountability limits for
any products linked with US regulated futures contracts\[.\]\" [^99] On
July 7, 2008, an identical CFTC staff letter was written to the DME.

It would seem that much of what the CFTC has done implements the data
collection requirements included in Congressman Etheridge's bill.
Indeed, the CFTC's threat of enforcement authority against ICE in its
June 17, 2008 letter, while limited for these purposes to failing to
register as a U.S. regulated contract market, would seem to make it
clear that that agency could enforce all civil and criminal penalties
asserted throughout the CEA against ICE and its members if appropriate,
thereby possibly even exceeding the grant of section 9 enforcement
powers afforded the CFTC with regard to FBOTs in S. 3130.

As will be shown below, however, the present skyrocketing cost of crude
oil and its derivative products, as well as the resulting
destabilization of the U.S. economy, would seem to counsel the use of
the full force of the CFTC's powers to bring ICE and similar "foreign"
exchanges with trading terminals in the U.S. trading futures premised on
U.S. delivered energy commodities under complete, direct, and real time
U.S. regulatory control.

**Deference to Foreign Regulators over U.S. Energy Futures Trading
Deprives U.S. Energy Markets and U.S. Energy Consumers of the Full
Weight of CEA Protections**

The question arises whether the U.S. should continue to regulate FBOT
trading of U.S. energy futures on U.S. terminals principally through
foreign regulators while requiring more aggressive CFTC oversight of
that process. Or, should trading of U.S. delivered energy products on
U.S. terminals be deemed a sufficient nexus to the U.S. and the well
being of its economy to require direct U.S. supervision. If Congress
settles for the status quo as evidenced by the CFTC's most recent
actions if forsakes a wealth of traditional regulatory tools that the
CFTC has to ensure that U.S. energy markets and prices are rooted in
economic fundamentals.

**[The Lack of Emergency Authority to Intervene in Market
Distortions]{.underline}**. The most substantial risk in following the
CFTC policy of leaving ICE and other similarly situated "foreign"
exchanges under the principal supervision of foreign regulators while
those exchanges have U.S. terminals trading critically important U.S.
delivered energy products is that the CFTC cannot exercise its broad
emergency authority to intervene immediately when confronted with
emergencies and dysfunctions on U.S. regulated contract markets.[^100]

Described as the CEA's "most potent tool," section 8a (9) provides that
"whenever \[the CFTC\] has *reason to believe* that an emergency
exists," it may take such actions "including, but not limited to "the
setting of temporary emergency margin levels on any futures contract
\[and\] the fixing of limits that may apply to a market position."[^101]
An "emergency" is defined:

> "to mean, in addition to threatened or actual market manipulations and
> corners, any act the United states or a foreign government affecting a
> commodity or any other major market disturbance *which prevents the
> market from accurately reflecting the forces of supply demand for such
> commodity*."[^102]

It should be born in mind that these emergency powers afford the CFTC
the *immediate* right to alter on a real time basis margin requirements
and speculation and position limits to deal with crises as they arise
"*which prevent\[\] the market from accurately reflecting the forces of
supply demand\[.\]*" While section 8a (9) affords direct judicial review
of orders after they are issued in a federal court of appeals, it does
not by its terms require emergency orders to be preceded by notice and
an opportunity to be heard, thereby ensuring speedy restoration of
normal market processes.[^103]

When one reads this broad power afforded to the CFTC, one could
reasonably ask why it has not been used on days such as Friday, June 6,
2008 when the WTI crude oil futures prices rose nearly \$11 per barrel
in a single day.[^104] That is best explained by the fact that the only
real time market data in the hands of the CFTC on that day was from
NYMEX---the fully regulated U.S. exchange with speculation limits in
place; perhaps if the CFTC had meaningful and real time ICE data on that
day, thereby seeing the entirety of the WTI crude oil market, it might
have seen a need to intervene under its emergency authority to impose
temporary position limits and margin requirements to cool down what was
widely viewed as breathtaking volatility.

Of course, even when it receives the ICE data within 120 days of its
June 17, 2008 requirements, the CFTC will still not have the authority
under the governing CFTC no action letter to use its emergency
intervention powers on ICE even though over 60% of ICE U.S. delivered
WTI futures trading is done within our own country. Rather than
exercising real time emergency authority, the CFTC will have to once
again "negotiate" with the FSA to have that U.K. regulator intervene to
deal with, *inter alia*, ICE WTI trade matching systems located in
Chicago, Illinois.

Moreover, relying upon the FSA to intervene on a real time basis for a
"major market disturbance" on a U.S. delivered energy futures contract
traded on U.S. terminals is as problematic as a matter of policy as it
is as a matter of logistics. Unlike the robust emergency authority given
by Congress to the CFTC under section 8a (9), the FSA emergency powers
have been implemented in a quite lackluster fashion. While its governing
statute affords intervention power[^105], FSA makes clear on its web
site that the U.K. has translated any such authority when "major
operational disruptions" are detected on ICE, to a "Tripartite Standing
Committee" that would convene the "Cross Market Business Continuity
Group" (CMBCG) to:

> "provide\[\] a forum for establishing senior-level practitioner views
> . . . . Its role is advisory: decisions will be for the relevant
> official or market authorities or for firms themselves either
> individually or collectively through the agency of the CMBCG. The
> CMBCG may also have a role in pooling information to help facilitate
> private sector decisions and workarounds to alleviate pressures on the
> system."[^106]

This U.K. guidance for sharing "views" and for "pooling information" in
an "advisory" capacity to "help facilitate private sector" decisions in
London is what the U.S. industrial consumers of crude oil and the U.S.
gas consuming public are left to fall back upon when WTI crude oil soon
skyrockets to \$150 per barrel as has been predicted by Morgan Stanley,
one of the founders of ICE.[^107] The CFTC's June 17 imposition of new
conditions on ICE do not convert the U.K.'s lackluster emergency
responses into the vigorous emergency responses called for by U.S. law.

Indeed, any effort by Congress to insist upon "comparability" on
emergency powers is futile. As the *Financial Times* has so aptly
commented on June 20, 2008, the U.K.'s futures regulator "operates a . .
. system of 'credible deterrence' of wrongdoing by *engaging in a
dialogue with market participants*. Since the FSA's creation in 1997, it
has brought *no* civil or criminal cases in energy markets."[^108] In
stark contrast, as Acting Chairman Lukken recently proudly reported to
Congress: "\[s\]ince December 2002 to the present time, the \[CFTC\] has
filed a total of 39 enforcement actions charging a total of 64
defendants with violations involving the energy markets," having
referred "35 criminal actions concerning energy market misconduct" to
the Department of Justice.[^109]

The contrast between FSA and CFTC enforcement activity in the energy
futures markets under their control is quite remarkable, especially
since ICE is responsible for nearly 50% of all crude oil futures
contracts traded worldwide and since the CFTC has not had access to
meaningful ICE data.[^110]

The American gas consuming public's trust in the FSA might also be
shaken by the U.K.'s response to the June 17, 2008 CFTC announcement of
the imposition of new transparency requirements on ICE's use of U.S.
terminals used as a critical part of ICE's control of over 30 % of the
U.S. delivered WTI contract. Mr. Stuart Fraser, head of policy at the
City of London Corporation, is reported in the *Financial Times* to have
called the CFTC June 17 letter "American imperialism," and adding for
measure "if a bunch of \[S\]enators want to get rude about the FSA,
that's fine, but don't interfere in *our* market."[^111]

Of course, the UK is wrong to think trading on U.S. terminals of the
U.S. WTI contract is "their" market. ICE is U.S. owned, operated in
Atlanta with trading terminals and engines in the U.S. and trading over
30% of U.S. delivered crude oil futures market in U.S. dollar
denominated currency.

However, one could easily see how those officials in the U.K. might
mistakenly view WTI trading on U.S. terminals as "their" market when the
CFTC and ICE continue to refer to this self evidently "U.S." market as
being conducted on a "foreign" exchange. If the CFTC were to flatly
state the obvious ( *i.e*., ICE Futures Europe is wholly owned by a U.S.
concern, having brought the corpus of the old British International
Petroleum Exchange, for all intents and purposes, to the U.S.). the UK
might grasp the reality of the situation, rather than the ICE
perpetuated "London" myth.

**[Deferring to Foreign Regulators Undercuts the Self Regulatory and
Surveillance Requirements of U.S. Law.]{.underline}**

Next to the inability to exercise the extraordinary emergency powers
afforded the CFTC to oversee its markets by deferring to the foreign
regulators to supervise U.S. energy futures products on U.S. trading
terminals, the most serious problem with further CFTC or Congressional
deference to FSA is the foregoing of the substantial self regulation and
surveillance provided by U.S. regulated contract markets to assist U.S.
regulators in policing futures markets.

The "core principles" within the CEA that must be followed by an
approved U.S. regulated contract market emphasize the importance having
those markets serve as the first line of defense for the CFTC in
detecting fraud, manipulation, excessive speculation, and other unlawful
trading malpractices.[^112] Without aggressive self-policing of the
entirety of the regulated U.S. futures markets, the CFTC simply cannot
do its job.

The seriousness with which U.S. regulated markets take their statutorily
mandated self-policing and surveillance role is evidenced by NYMEX's
"standards and safeguards" concerning trade and market surveillance. For
example, NYMEX makes clear:

> Market surveillance is required under CFTC regulations. Each day, the
> compliance staff compiles a profile of participants, identifying
> members and their customers holding reportable positions. In addition,
> daily surveillance is performed to ensure that Exchange prices reflect
> cash market price movements, that the futures market converges with
> the cash market at contract expiration, and *that there are no price
> distortions and no market manipulation*. . . .[^113]

As to trade surveillance, NYMEX provides:

> Compliance department analysts are trained to spot instances of
> misconduct, including "front running" or trading ahead of a customer;
> wash or accommodation trading (transactions creating the appearance of
> trading activity, but which have no real economic effect); prohibited
> cross trading (trading directly or indirectly with a customer except
> under very limited circumstances, or matching two customer orders
> without offering them competitively); prearranged trading; and
> non-competitive trading.[^114]

NYMEX reports that is has @ \$6.5 million budget for oversight market
surveillance with an enforcement staff of @ 40 personnel.

No detailed analysis of ICE's self-regulatory and surveillance system is
required. Suffice it to say, that for all of ICE's worldwide markets
which are accessible by the U.S. trading terminals, including the U.S.
WTI contract, reports are that ICE employs no more than ten individuals
on its surveillance staff, i.e., a staff that is one quarter the size of
NYMEX. This staff monitors trading of a host of ICE contracts, including
those contracts which control over 47% of the world crude oil
futures.[^115] Of course, for those energy futures trades ICE executes
under the Enron Loophole (because those trades do not derive from the
old-IPE), such as the critical Henry Hub U.S. delivered natural gas
futures contract, ICE, as of now, has *no* self-regulation or
surveillance system.

Moreover, leaving ICE's paltry surveillance resources to the side, the
principal regulator to which the CFTC is deferring to oversee directly
over 30% of U.S. delivered WTI contracts, the U.K.'s FSA, has only "two
full time supervisors," monitoring all of the ICE contracts under their
jurisdiction.[^116] Again, this includes 47% of world's energy futures
contracts.

In sum, even though the CFTC has ratcheted up ICE's regulatory
obligations by adding large trader reporting and speculation limits to
the WTI trading, it defers to the FSA for the remainder of the oversight
of ICE. In effect, this deference to the U.K. for U.S. trading of the
critically important WTI contracts surrenders emergency authority to
intervene when there are market dysfunctions to impose temporary margin
requirements and position limits; and it sacrifices the real "eyes and
ears" policing these markets (i.e., the regulated exchanges themselves)
by depending upon ICE's meager surveillance systems.

In a time of economic distress for American industry and the American
consumer caused by skyrocketing energy prices, this country cannot
afford to outsource authority to the UK to oversee trading on 30% of our
own U.S. delivered crude oil futures contracts, much of which is
consummated on U.S. based trading terminals and all of which is trade
matched in Chicago, Illinois.

Finally, it bears repeating that during last summer's subprime mortgage
crisis, Northern Rock PLC, one of the U.K.'s largest banks, was required
to borrow billions of dollars from the U.K.'s central bank.[^117] After
news of the bailout was released to the public, thousands of customers
wary of losing their savings stood in long lines for several days
outside of Northern Rock's branches to withdraw deposits.[^118] With
Northern Rock on the brink of collapse, the FSA provided over \$100
billion in loans to the bank and in February 2008, the British
government finally was required to nationalize it.[^119] In March 2008,
FSA published an internal report stating that its regulation of Northern
Rock \"was not carried out to a standard that is acceptable,\" and
highlighted its own failure to provide adequate supervision, oversight,
and resources.[^120] In addition to FSA's self-criticism, in April 2008,
the European Union opened a formal investigation into FSA's
restructuring of Northern Rock.[^121]

This episode, maybe more than any other, reveals that Congress cannot
afford to leave direct oversight of trading on U.S. terminals of the
most important futures contract in determining the price of oil,
gasoline, and heating oil. As demonstrated above,[^122] Congress has the
full authority to pass legislation placing those U.S. terminals under
U.S. regulatory control.

Threats that the U.S. reassertion of regulatory control over trading
within the U.S. will drive trading overseas are undercut by the reality
of every major futures foreign exchange having set up shop in the U.S.;
and by the well documented law described above that even a foreign
trader in a foreign country who illegally disrupts U.S. markets is
subject to the full force and effect of that law.

Finally, contrary to the assertion of the City of London Corporation,
this is not a "British" market; it is a U.S. market principally being
traded in the U.S. by a trading entity controlled by a U.S. corporation.
The economic distress now being suffered by Americans over high energy
products cannot be placed in the hands of foreign governments when those
products are traded here and have such a huge impact on our economy.

[^1]: The Economic Purpose of Futures Markets and How They Work,
    [Commodity Futures Trading Commission]{.smallcaps},
    <http://www.cftc.gov/educationcenter/economicpurpose.html> (last
    visited July 8, 2008).

[^2]: *See* Platts Oil Pricing and Market-on-Close Methodology
    Explained, Platts (July 2007) at 3, *available at*
    <http://www.platts.com/Resources/whitepapers/index.xml>.

[^3]: *See*, *e.g.*, Jonathan Ira Levy, *Contemplating Delivery: Futures
    Trading and the Problem of Commodity Exchange in the United States*,
    *1875-1905*, [American Historical Review]{.smallcaps} 307 (2006)
    ("'\[T\]he man who managed or sold or owned those immense wheat
    fields has not as much to say with the regard to the price of the
    wheat that some young fellow who stands howling around the Chicago
    wheat pit could actually sell in a day'"(quoting *Fictitious
    Dealings in Agricultural Products: House Comm. on Agric. Committee
    Hearing Reports* (1892)).

[^4]: Report No. 421, U.S. House of Representatives 74^th^ Cong,
    Accompanying the Commodity Exchange Act, March 18, 1935.

[^5]: President Franklin D. Roosevelt, Message to Congress, February 9,
    1934.

[^6]: Report No. 421, U.S. House of Representatives 74^th^ Cong.,
    Accompanying the Commodity Exchange Act, March 18, 1935.

[^7]: [Philip McBride Johnson & Thomas Lee Hazen, Derivatives
    Regulation]{.smallcaps} 28 (Cumm. Supp. 2008).

[^8]: *Id*. at § 1.17.

[^9]: *Id*. at 28; *see also* President's Working Group on Financial
    Markets, Over-the-Counter Derivatives Markets and the Commodity
    Exchange Act 16 (1999), *available at*
    <http://www.ustreas.gov/press/releases/reports/otcact.pdf> (last
    visited July 8, 2008) ("Due to the characteristics of markets for
    non-financial commodities with finite supplies, however, the Working
    Group is unanimously recommending that the exclusion \[from
    regulation\] not be extended to agreements involving such
    commodities.").

[^10]: [Permanent Subcommittee on Investigations of the Committee on
    Homeland Security and Governmental Affairs, The Role of Market
    Speculation In Rising Oil and Gas Prices: A Need to Put the Cop Back
    on the Beat]{.smallcaps} (June 27, 2006) \[hereinafter June 2006
    Report\]; [Permanent Subcommittee on Investigations of the Committee
    on Homeland Security and Governmental Affairs, Excessive Speculation
    in the Natural Gas Market (]{.smallcaps}June 25, 2007) \[hereinafter
    June 2007 Report\].

[^11]: June 2006 Report, *supra* note 10, at 2, 23.

[^12]: *See*, *e.g.,* Edmund Conway, *George Soros: Rocketing Oil Price
    is a Bubble*, [Daily Telegraph]{.smallcaps} (May 27, 2008),
    *available at*
    [http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnsoros126.xml](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/26/cnsoros126.xml)
    (last visited July 8, 2008) (quoting Mr. George Soros as stating
    \"Speculation . . . is increasingly affecting the price\"); Written
    Testimony of Michael Masters, *Hearing Before the Committee on
    Homeland Security and Governmental Affairs*, *U.S. Senate* 2 (May
    20, 2008), *available at*
    [http://hsgac.senate.gov/public/\_files/052008Masters.pdf](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://hsgac.senate.gov/public/_files/052008Masters.pdf)
    (last visited July 8, 2008) (quoting Michael W. Masters as stating 
    \"Are Institutional Investors contributing to food and energy price
    inflation? And my unequivocal answer is YES\"); Oral Testimony of
    Edward Krapels, Hearing Before the Committee on Energy and Commerce
    Subcommittee on Oversight and Investigations, U.S. House of
    Representatives, (June 23, 2008) (quoting Mr. Edward Krapels as
    stating \"I think the amount of speculation is really substantial
    \[within the crude oil market.\]\"); Oral Testimony of Roger Diwan,
    Hearing Before the Committee on Energy and Commerce Subcommittee on
    Oversight and Investigations, U.S. House of Representatives, (June
    23, 2008)  (quoting Mr. Roger Diwan, responding to Rep. Whitfield\'s
    question: So you\'re saying if we adopt these regulatory changes, we
    could almost cut the retail price of gas in half in a relatively
    short period of time?  \"I don\'t know how quickly it takes to get
    prices down, but it\'s clear that prices will reflect closer the
    marginal cost of producing oil.\"); Alejandro Lazo, Energy *Stocks
    Haven\'t Caught Up With Oil Prices*, [Wash. Post]{.smallcaps} (Mar.
    23, 2008), *available at*
    [http://www.washingtonpost.com/wp-dyn/content/article/2008/03/21/AR2008032103825.html](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.washingtonpost.com/wp-dyn/content/article/2008/03/21/AR2008032103825.html)
    (last visited July 8, 2008) (quoting Mr. Fadel Gheit as stating
    \"The largest speculators are the largest financial companies.\");
    [Michelle Foss, United States Natural Gas Prices to
    2015,]{.smallcaps} 34 (2007), *available at*
    [http://www.oxfordenergy.org/pdfs/NG18.pdf](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.oxfordenergy.org/pdfs/NG18.pdf)
    (last visited July 8, 2008) (asserting \"The role of speculation in
    oil markets has been widely debated but could add upwards of \$20 to
    the price per barrel.\");  Tim Evans, Citi Futures Perspective: PM
    Energy News & Views, at 2 (July 3, 2008) (quoting \"With the latest
    push to the upside, we see the crude oil market becoming even more
    completely divorced from any connection to fundamental factors and
    becoming even more obsessed with the simple question, How high can
    it go?\");  Advantage Business Media, *Economist Blames Subsidies
    for Oil Price Hike*, [Chem.Info (2008)]{.smallcaps}, *available at*
    [http://www.chem.info/ShowPR.aspx?PUBCODE=075&ACCT=0000100&ISSUE=0609&ORIGRELTYPE=DM&RELTYPE=PR&PRODCODE=00000&PRODLETT=M&CommonCount=0](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.chem.info/ShowPR.aspx?PUBCODE=075%26ACCT=0000100%26ISSUE=0609%26ORIGRELTYPE=DM%26RELTYPE=PR%26PRODCODE=00000%26PRODLETT=M%26CommonCount=0) 
    (last visited July 8, 2008) (quoting Dr. Michelle Foss as stating
    \"We have an overpriced commodity, and this is going to be around
    for a while.\");  Kenneth N. Gilpin, *OPEC Agrees to Increase Output
    in July to Ease Oil Prices*, [N.Y. Times]{.smallcaps} (June 3, 2004)
    *available at*
    [http://www.nytimes.com/2004/06/03/business/03CND-OIL.html?ex=1401681600&en=5dbd50c5b369795b&ei=5007&partner=USERLAND](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.nytimes.com/2004/06/03/business/03CND-OIL.html?ex=1401681600%26en=5dbd50c5b369795b%26ei=5007%26partner=USERLAND)
    (last visited July 8, 2008) (quoting Mr. Kyle Cooper as stating
    \"There is not a crude shortage, which is why OPEC was so reluctant
    to raise production.\");  Upstream, *Speculators \'not to blame\'
    for Oil Prices*, [UpstreamOnline.com]{.smallcaps}, (April 4, 2008),
    available at
    [http://www.upstreamonline.com/live/article151805.ece](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.upstreamonline.com/live/article151805.ece)
    (last visited July 8, 2008) (quoting Mr. Sean Cota as stating \"It
    has become apparent that excessive speculation on energy trading
    facilities is the fuel that is driving this runaway train in crude
    prices\"); Mike Norman, *The Danger of Speculation*, [FoxNews.com 
    (]{.smallcaps}Aug[. 19, 2005),]{.smallcaps} *available at*
    [http://www.foxnews.com/story/0,2933,166038,00.html](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://www.foxnews.com/story/0,2933,166038,00.html)
    (last visited July 8, 2008) (Mr. Norman stating \"Oil prices are
    high because of speculation, pure and simple. That\'s not an
    assertion, that\'s a fact. Yet rather than attack the speculation
    and rid ourselves of the problem, we flail away at the symptoms.\").

[^13]: [International Monetary Fund, Regional Economic Outlook: Middle
    East and Central Asia]{.smallcaps} 27-28 (2008) ("Producers and many
    analysts say it is speculative activity that is pushing up oil
    prices now. Producers in particular argue that fundamentals would
    yield an oil price of about US \$80 a barrel, with the rest being
    the result of speculative activity."); *see also* Neil King Jr.,
    *Saudi Arabia\'s Leverage In Oil Market Is Sapped*, [Wall Street J.
    (]{.smallcaps}June 16, 2008), *available at*
    <http://online.wsj.com/article/SB121355902769475555.html?mod=googlenews_wsj>
    (last visited July 8, 2008) (quoting Saudi Oil Minister Ali Naimi as
    saying skyrocketing oil prices were "unjustified by the
    fundamentals" of supply and demand).

[^14]: *See* June 2007 Report, *supra* note 10, at 27.

[^15]: *See id*.

[^16]: *See* Written Testimony of Professor Michael Greenberger, *Energy
    Market Manipulation and Federal Enforcement Regimes: Hearing before
    the S. Comm. on Commerce, Science, and Transportation*, 3 (2008),
    *available at*
    <http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1026&context=cong_test>
    (last visited July 8, 2008).

[^17]: Dubai Mercantile Exchange Ltd., CFTC No-Action Letter, 2007 CFTC
    Ltr. LEXIS 6 (May 24, 2007).  

[^18]: *See* Written Testimony of Jim Newsome, Hearing Before the
    Committee on Energy and Commerce Subcommittee on Oversight and
    Investigations, U.S. House of Representatives, at 6 (June 23, 2008)
    \[hereinafter June 23, 2008 Testimony of Jim Newsome\].

[^19]: *Id*.; Jeremy Grant, *Nymex\'s Long Road to the Electronic Age*,
    [Financial Times]{.smallcaps} (Feb. 17, 2006), at 39. (\"Nymex has
    indicated that it might be forced to move its electronically traded
    WTI to London so that it can compete on a level playing field with
    ICE.\").

[^20]: *See* June 23, 2008 Testimony of Jim Newsome, *supra* note 18.

[^21]: *See* Written Testimony of Professor Michael Greenberger, *Energy
    Speculation: Is Greater Regulation Necessary to Stop Price
    Manipulation?: Hearing Before the H. Subcomm. on Oversight and
    Investigations* 11-12 (2007) (providing a complete discussion of the
    no-action letter process including termination), *available at*
    <http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1011&context=cong_test>
    (last visited July 8, 2008).

[^22]: Masters, *supra* note 12.

[^23]: *Id.* at 7-8.

[^24]: Gene Epstein, *Commodities: Who's Behind The Boom?*,
    [Barron's]{.smallcaps} 32 (March 31, 2008) ( "The speculators, now
    so bullish, are mainly the index funds. . . . By using the \[swaps
    dealers\] as a conduit, the index funds get an exemption from
    position limits that are normally imposed on any other speculator,
    including the \$1 in every \$10 of index-fund money that does not go
    through the swaps dealers.").

[^25]: Masters, *supra* note 12, at 7.

[^26]: *Id*. at 8, 11.

[^27]: J. Aron & Co., CFTC Interpretive Letter, 1991 CFTC Ltr. LEXIS 18
    (Oct. 8, 1991).

[^28]: *See* Written Testimony of Michael Masters, Hearing Before
    Committee on Energy and Commerce Subcommittee on Oversight and
    Investigations, U.S. House of Representatives, at 5 (June 23, 2008)
    *available at*
    [http://energycommerce.house.gov/cmte_mtgs/110-oi-hrg.062308.Masters-testimony.pdf](https://outlook.dc.gov/exchweb/bin/redir.asp?URL=http://energycommerce.house.gov/cmte_mtgs/110-oi-hrg.062308.Masters-testimony.pdf)
    (quoting \"assets allocated to commodity index trading strategies
    have risen from \$13 billion at the end of 2003 to \$260 billion as
    of March 2008, and the prices of the 25 commodities that compose
    these indices have risen by an average of 183% in those five
    years!\").

[^29]: *See* Epstein, *supra* note 24.

[^30]: Food Conservation and Energy Act of 2008, Pub. L. No. 110-246, §
    13201; 122 Stat. 1651 (2008).

[^31]: *Id*.

[^32]: *See* [Richard J. Prince, Jr., Administrative Law Treatise
    424-25, 441-43 (4th ed. 2002).]{.smallcaps}

[^33]: Food Conservation and Energy Act of 2008, Pub. L. No. 110-246, §
    13201; 122 Stat. 1651 (2008).

[^34]: *Id*. at § 13204.

[^35]: *See* Written Testimony of Jeffrey C. Sprecher, To Examine
    Trading Regulated Exchanges and Exempt Commercial Markets: Hearing
    of the Commodity Futures Trading Commission, (September 18, 2007),
    *available at*
    [http://files.shareholder.com/downloads/ICE/325023768x0x132117/53a6f61e-b72b-47ca-8f8e-f8282c21c12b/CFTC%20Testimony%20091807.pdf](http://files.shareholder.com/downloads/ICE/325023768x0x132117/53a6f61e-b72b-47ca-8f8e-f8282c21c12b/CFTC Testimony 091807.pdf)
    (last visited July 8, 2008).

[^36]: *See* Written Testimony of Acting Chair Walter Lukken, *Energy
    Speculation: Is Greater Regulation Necessary to Stop Price
    Manipulation?: Hearing Before the H. Subcomm. on Oversight and
    Investigations,* 4 (Dec. 12, 2007) *available at*
    <http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opalukken-32.pdf>
    (emphasis added) (last visited July 8, 2008).

[^37]: See the many opinions from those experts in note 12 *supra*.

[^38]: S. 3134, 110^th^ Cong. (2008), *available at*
    <http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s3134is.txt.pdf>
    (last visited July 8, 2008).

[^39]: Policing United States Oil Commodities Markets Act of 2008, S.
    3122, 110th Cong. (2008), *available at*
    <http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s3122is.txt.pdf>
    (last visited July 8, 2008).

[^40]: Discussion Draft to establish aggregate speculative position
    limits (2008), *available at*
    <http://hsgac.senate.gov/public/_files/aggspeclimits.pdf> (last
    visited July 8, 2008).

[^41]: 7 U.S.C. § 6(b) (2008).

[^42]: [Philip McBride Johnson & Thomas Lee Hazen, Derivatives
    Regulation]{.smallcaps} 988 (2004 ed.).

[^43]: 1985 WL 1625 (1985).

[^44]: *Id*. at 1.

[^45]: *Id*. at 2 (internal citations omitted).

[^46]: 112 F.3d 287 (7th Cir. 1997).

[^47]: *Id*. at 288.

[^48]: *Id*. at 290-91.

[^49]: *Id*. at 291.

[^50]: Des Brisay v. Goldfield Corp., 549 F.2d 133, 135 (9th Cir. 1977)
    (citing Schoenbaum v. Firstbrook, 405 F.2d 200, 206 (2d Cir. 1968),
    *modified in other respects*, 405 F.2d 215 (in banc), *cert.
    denied*, 395 U.S. 906, 89 S. Ct. 1747, 23 L. Ed. 2d 219 (1969)).

[^51]: [Johnson & Hazen]{.smallcaps}, *supra* note 42, at 984.

[^52]: In the Matter of Sumitomo Corporation, 1998 CFTC LEXIS 96 (1998).

[^53]: *Id*. at 2-3.

[^54]: *Id*. at 24-25.

[^55]: *Id*. at 11-14.

[^56]: Floyd Norris, *The Markets; A Record Penalty of Sumitomo, a
    Lesson on Market Volatility*, [N.Y. Times]{.smallcaps} (May 12,
    1998), at D13 (emphasis added).

[^57]: [Johnson & Hazen]{.smallcaps}, *supra* note 42, at 984.

[^58]: *See* Press Release, Department of Justice, U.S. Charges 47 After
    Long-Term Undercover Investigation Involving Foreign Exchange
    Markets, (Nov. 19, 2003), *available at*
    <http://www.fbi.gov/dojpressrel/pressrel03/wooden111903.htm> (last
    visited July 8, 2008).

[^59]: Written Testimony of Professor Michael Greenberger, *Energy
    Market Manipulation and Federal Enforcement Regimes: Hearing Before
    the United States Senate Committee on Commerce, Science, and
    Transportation*, 12 (2008), *available at*
    <http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1026&context=cong_test>
    (last visited July 8, 2008).

[^60]: U.S. Commodity Futures Trading Commission, Foreign Boards of
    Trade Receiving Staff No Action Letters Permitting Direct Access
    from the U.S., *available at*
    <http://services.cftc.gov/sirt/sirt.aspx?Topic=ForeignTerminalRelief>
    (last visited July 8, 2008).

[^61]: Food Conservation and Energy Act of 2008, Pub. L. No. 110-246, §
    13201; 122 Stat. 1651 (2008); Jessica Marron, *House and Senate
    Lawmakers Move to Close \'Enron Loophole\' with Amendment to Farm
    Bill*, [Platts Global Power Report]{.smallcaps}, (May 1, 2008)
    (stating that the "initial target of the \[the Farm's Bill End the
    Enron Loophole Provision\] is ICE's financially settled Henry Hub
    swap contract").

[^62]: [Johnson & Hazen]{.smallcaps}, *supra* note 42, at 986 (citing In
    the Matter of Ralli Brothers Bankers, \[1986-1987 Transfer Binder\]
    Comm. Fut. L. Rep. (CCH) ¶ 23, 314 (1986)).

[^63]: 730 F.2d 1103 (7th Cir. 1984).

[^64]: *Id*. at 1104-05.

[^65]: *Id*. at 1108; [Johnson & Hazen]{.smallcaps}, *supra* note 42, at
    987.

[^66]: Written Testimony of Professor Michael Greenberger, *Energy
    Speculation: Is Greater Regulation Necessary to Stop Price
    Manipulation?: Hearing Before the H. Subcomm. On Oversight and
    Investigations*, 14-15 (2007), *available at*
    <http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1011&context=cong_test>
    (last visited July 8, 2008).

[^67]: *See, e.g.,* LIFFE Administration & Management, CFTC No-Action
    Letter, 1999 CFTC Ltr. LEXIS 38, 4-5 (July 23, 1999); Access to
    Automated Boards of Trade (proposed rules), 64 Fed. Reg. 14,159,
    14,174 (Mar. 24, 1999).

    As the proposed rules explained,

    > Section 4(c) of the Act provides the Commission with authority
    > \"by rule, regulation, or order\" to exempt \"any agreement,
    > contract or transaction\" from the requirements of Section 4(a) of
    > the act if the Commission determines that the exemption would be
    > consistent with the public interest, that the contracts would be
    > entered into solely by appropriate persons and that the exemption
    > would not have a material adverse effect on the ability of the
    > Commission or any contract market to discharge its regulatory or
    > self-regulatory duties under the Act. *Id*. (internal citations
    > omitted).

[^68]: Among the conditions present in all of the no action letters are
    the following: the exchange will satisfy the appropriate designation
    in its home jurisdiction, the exchange must work to ensure fair
    markets that prohibit fraud and other abuses by providing adequate
    supervision, continued adherence to IOSCO Principles for Oversight
    of Screen-Based Trading Systems for Derivative Products, members and
    guaranteed customers will only receive direct access if a clearing
    member guarantees and assumes all financial liability, there are
    sufficient safeguards to prevent unauthorized access or trading, at
    the Commission's request recipients will provide market information
    including access to books and records, and will submit all contracts
    to be made available through the no-action process, the volume of
    said trades and a list of names and addresses of all those using
    these exchanges. *See, e.g.,* LIFFE Administration and Management,
    CFTC No-Action Letter, 1999 CFTC Ltr. LEXIS 38, 65-72 (July 23,
    1999); IPE, CFTC No-Action Letter, 1999 CFTC Ltr. LEXIS 152, 58-66
    (Nov. 12, 1999); Dubai Mercantile Exchange Ltd., CFTC No-Action
    Letter, 2007 CFTC Ltr. LEXIS 6, 87-96 (May 24, 2007).

[^69]: Amendment to No-Action Letter Issued to the International
    Petroleum Exchange of London (now ICE Futures Europe), CFTC
    No-Action Letter, (June 17, 2008), *available at*
    <http://www.cftc.gov/stellent/groups/public/@lrlettergeneral/documents/letter/08-09.pdf>
    (last visited July 8, 2008); Press Release, CFTC, CFTC Conditions
    Foreign Access on Adoption of Position Limits on London Crude Oil
    Contract (June 17, 2008) *available at*
    <http://www.cftc.gov/newsroom/generalpressreleases/2008/pr5511-08.html>
    (last visited July 8, 2008).

[^70]: Press Release, CFTC, CFTC Conditions Foreign Access on Adoption
    of Position Limits on London Crude Oil Contract (June 17, 2008)
    *available at*
    <http://www.cftc.gov/newsroom/generalpressreleases/2008/pr5511-08.html>
    (last visited July 8, 2008). As Acting Chairman Lukken stated,

    > These new conditions for foreign access will provide the CFTC with
    > additional oversight tools to monitor linked contracts. This
    > powerful combination of enhanced trading data and additional
    > market controls will help the CFTC in its surveillance of
    > regulated domestic exchanges, while preserving the important
    > benefits of our international recognition program that has enabled
    > proper global oversight during the last decade. This raises the
    > bar for all future foreign access requests and will ensure uniform
    > oversight of linked contracts. *Id*.

[^71]: Amendment to No-Action Letter Issued to the International
    Petroleum Exchange of London (now ICE Futures Europe), CFTC
    No-Action Letter, (June 17, 2008) *available at*
    <http://www.cftc.gov/stellent/groups/public/@lrlettergeneral/documents/letter/08-09.pdf>
    (last visited July 8, 2008).

[^72]: *See supra* notes 68-70 and accompanying text.

[^73]: Boards of Trade Located Outside of the United States and
    No-Action Relief from the Requirement to Become a Designated
    Contract Market or Derivatives Transaction Execution Facility, 71
    Fed. Reg. 64,443 (Nov. 2, 2006).

[^74]: *Id*. at 64,445 n.23.

[^75]: Amendment to No-Action Letter Issued to the International
    Petroleum Exchange of London (now ICE Futures Europe), CFTC
    No-Action Letter, (June 17, 2008) *available at*
    <http://www.cftc.gov/stellent/groups/public/@lrlettergeneral/documents/letter/08-09.pdf>
    (last visited July 8, 2008).

[^76]: H.R. 6334.

[^77]: *See supra* notes 41-42 and accompanying text.

[^78]: *See supra* notes 43-60 and accompanying text.

[^79]: *See supra* notes 43-60 and accompanying text. []{.mark}

[^80]: *See supra* note 42 and accompanying text.

[^81]: *See* S. 3130 § 7, 110th Cong. (2008), *available at*
    <http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:s3130is.txt.pdf>
    (last visited July 8, 2008).

[^82]: *See id.*

[^83]: *Id.*

[^84]: *Id.* at §6.

[^85]: *Id.* at §11.

[^86]: Walt Lukken, Acting Chairman, CFTC, Prepared Remarks: Compliance
    and Enforcement in Energy Markets\-- The CFTC Perspective (Jan. 18,
    2008), *available at*
    <http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opalukken-34.pdf>
    (last visited June 21, 2008) (quoting Mr. Walter Lukken \"While
    speculators play a integral role in the futures markets, the report
    concludes that speculative buying, as a whole, does not appear to
    drive up price\"); Tina Seeley, *Energy Market Not Manipulated, U.S.
    Regulator Says (Update1),* [Bloomberg.com]{.smallcaps} (May 7,
    2008), *available at*
    <http://www.bloomberg.com/apps/news?pid=20601072&sid=aX0iaEd9bOMU&refer=energy>
    (last visited June 21, 2008) (quoting Mr. Walter Lukken, \"We have
    not seen that speculators are a major factor in driving these
    prices\"); Ian Talley & Stephen Power, *Regulator Faults
    Energy-Futures Proposal*, [Wall St. J]{.smallcaps}. (May 8, 2008)
    (stating that Mr. Walter Lukken commented that his agency hadn\'t
    seen evidence indicating that speculators are \"a major factor\" in
    driving up oil prices); Oral Testimony of Walter L. Lukken,
    Commissioner, CFTC, *Before the Committee on Agriculture, U.S. House
    of Representatives*, (April 27, 2006) (quoting Mr. Walter Lukken
    \"\[B\]ased on our surveillance efforts to date, we believe that
    crude oil and gasoline futures markets have been accurately
    reflecting the underlying fundamentals of these markets\"); Sharon
    Brown-Hruska, Chairman, CFTC, Address before the International
    Monetary Fund: Futures Markets in the Energy Sector (Jun. 15, 2006),
    *available a*t
    <http://www.cftc.gov/newsroom/speechestestimony/opabrownhruska-46.html>
    (last visited Jun. 21, 2008) (stating \"To date, the staff\'
    findings have shown that these large speculators as a group tend to
    inject liquidity into the markets rather than having an undue impact
    on price movements\"); Sharon Brown-Hruska, Chairman, CFTC, Keynote
    Address at the Managed Funds Association Annual Forum (Jun. 25,
    2005), *available at*
    <http://www.cftc.gov/opa/speeches05/opabrownhruska34.htm> (last
    visited June 21, 2008) (stating the CFTC\'s study of the role of
    managed funds in our markets, \"\[C\]ontradicts with force the
    anecdotal observations and conventional wisdom regarding hedge funds
    and speculators, in general.").

[^87]: *See, e.g., supra* note 86 and accompanying text.

[^88]: Written Testimony of Jeffrey Harris, Chief Economist, CFTC,
    *Before the Senate Committee on Homeland Security and Governmental
    Affairs, United States Senate* 20 (2008), *available at*
    <http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/oeajeffharristestimony052008.pdf>
    (last visited June 21, 2008).

[^89]: *Id.*; *see, e.g.*, Richard Hill, *Lieberman Says He Will
    Consider Legislation to Address Commodity Prices*, 40 [Bureau of
    Nat'l. Aff]{.smallcaps}. 21 (May 26, 2008) (emphasis added),
    *available at*
    <http://corplawcenter.bna.com/pic2/clb.nsf/id/BNAP-7EVTDG?OpenDocument>
    (last visited June 21, 2008).

[^90]: CFTC Commissioner Bart Chilton has acknowledged that the public
    announcement within the May 29 release raises the specter that "some
    people \[will\] head for the paper shredder \[.\]" Tina Seeley,
    *CFTC Targets Shipping, Storage in Oil Investigation (Update2)*,
    [Bloomberg.com]{.smallcaps} (May 30, 2008), *available at*
    <http://www.bloomberg.com/apps/news?pid=20601087&sid=aGzRMmD_b9MA&refer=home>
    (last visited June 21, 2008).

[^91]: Press Release, U.S. Commodity Futures Trading Commission, CFTC
    Announces Multiple Energy Market Initiatives (May 29, 2008),
    *available at*
    <http://www.cftc.gov/newsroom/generalpressreleases/2008/pr5503-08.html>
    (last visited June 21, 2008).

[^92]: *See* Letter from Twenty-Two Senators to Walter Lukken, Acting
    Chairman, CFTC (May 23, 2008), *available at*
    <http://cantwell.senate.gov/news/record.cfm?id=298325> (last visited
    June 21, 2008) (insisting that CFTC require ICE to demonstrate why
    it should not be subject to the same regulation as other U.S.-based
    exchanges and warning, "\[a\]bsent expeditious Commission action,
    Congress may need to step in to protect consumers and ensure that
    all markets trading U.S. delivered energy futures are transparent
    and free of fraud, manipulation, and excessive speculation"); Letter
    from Senator Jeff Bingaman to Walter Lukken, Acting Chairman, CFTC
    (May 27, 2008), *available at*
    <http://energy.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=0fdd0eb4-4b1d-49f0-a3a2-f89fd0e4b1d3&Month=5&Year=2008&Party=0>
    (last visited June 21, 2008) (expressing concern that that "the
    Commission's assertions to date \-- discounting the potential role
    of speculation in driving up oil prices \-- have been based on a
    glaringly incomplete data set" and demanding an explanation of many
    CFTC activities); *Energy Speculation: Is Greater Regulation
    Necessary to Stop Price Manipulation?: Hearing Before the House
    Subcomm. on Oversight & Investigations*, 110th Cong. (2007)
    (statement of Rep. Joe Barton, Member, House Subcomm. on
    Investigations) (informing Walter Lukken, Acting Chairman, CFTC,
    that Congressed had empowered FERC to provide additional regulation
    in some energy markets because they were displeased with the CFTC's
    efforts).

[^93]: Amendment to No-Action Letter Issued to the International
    Petroleum Exchange of London (now ICE Futures Europe), CFTC
    No-Action Letter 2 (June 17, 2008), *available at*
    <http://www.cftc.gov/stellent/groups/public/@lrlettergeneral/documents/letter/08-09.pdf>
    (last visited June 20, 2008).

[^94]: *Id.*

[^95]: *Id*. at 3.

[^96]: *Id*.

[^97]: *Id*.

[^98]: *Id*.

[^99]: Nick Snow, *US CFTC Unveils New Foreign Market Data Pact*, [Oil &
    Gas J]{.smallcaps}., (June 18, 2008), *available at*
    <http://www.mapsearch.com/news/display.html?id=332086> (last visited
    June 21, 2008).

[^100]: [Johnson & Hazen]{.smallcaps}, *supra* note 42, at 1218.

[^101]: 7 U.S.C. § 12a(9) (2008) (emphasis added).

[^102]: *Id.* (emphasis added).

[^103]: [Johnson & Hazen]{.smallcaps}, supra note 42, at 1221-22.

[^104]: *See* Simon Webb, *OPEC hike unlikely at emergency oil talks*,
    [ReutersUK]{.smallcaps}, (June 20, 2008), *available at*
    <http://uk.reuters.com/article/oilRpt/idUKL2058919720080620> (last
    visited July 8, 2008).

[^105]: § 313(A), Financial Services and Markets Act 2000).

[^106]: *Developments in financial sector crisis management*, FSA
    Homepage, *available at*
    <http://www.fsa.gov.uk/Pages/About/Teams/Stability/crisis/index.shtml>
    (last visited July 8, 2008).

[^107]: Tim Paradis, *Stocks decline in jobs data, surge in oil prices*,
    [Associated Press]{.smallcaps} (June 6, 2008), available at
    <http://ap.google.com/article/ALeqM5gHs5OM3gFG_DytQQZFbWfgPT08MAD914K0H80>
    (last visited July 8, 2008). Goldman Sachs, also one of the founders
    of ICE, has predicted that the price per barrel of crude oil will
    surpass \$200 by October of this year. Neil King Jr. and Spencer
    Swartz, *U.S. News: Some See Oil at \$150 This Year \-\-- Range of
    Factors May Sustain Surge; \$4.50-a-Gallon Gas*, [Wall St. J.
    (]{.smallcaps}May 7, 2008) at A3; Greenberger, *supra* note 21, at
    7.

[^108]: Jeremy Grant, *ICE restrictions cold comfort for FSA*,
    [Financial Times]{.smallcaps} (June 20, 2008) (emphasis added),
    *available at*
    <http://www.ft.com/cms/s/0/2ba33a0e-3e35-11dd-b16d-0000779fd2ac.html>
    (last visited July 8, 2008).

[^109]: Written testimony of Acting Chairman Walter Lukken, *Hearing
    Before the Senate Appropriations Subcommittee on Financial Services
    and General Government And The Senate Committee on Agriculture,
    Nutrition and Forestry* 4 (2008), *available at*
    <http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/opalukken-41.pdf>
    (last visited July 8, 2008).

[^110]: Intercontinental Exchange, Inc., Annual Report Form (10-K) at 63
    (Dec. 31, 2007) *available at*
    <http://www.secinfo.com/dsVsf.tU7.htm> (last visited July 8, 2008)
    (showing that ICE's total crude oil futures market share is 47.8%).

[^111]: Jeremy Grant, *Storm over push for regulatory reform on
    positions at ICE*, [Financial Times]{.smallcaps} (June 20, 2008)
    (emphasis added), *available at*
    <http://www.ft.com/cms/s/0/a00c6a00-3e62-11dd-b16d-0000779fd2ac.html>
    (last visited July 8, 2008).

[^112]: 7 U.S.C. § 7(d)(2)-(6) (2008); (2) (compliance with rules); (3)
    (contracts not readily subject to manipulation); (4) (monitoring of
    trading); (5) (position limits); (6) (emergency authority); 7 U.S.C.
    § 7a(d)(2)-(3) (2008); (2) (compliance with rules); (3) (monitoring
    of trading).

[^113]: NYMEX, Enforcement of Exchange Rules, *available at*
    <http://www.nymex.com/ss_main.aspx?pg=6> (last visited July 8, 2008)
    (emphasis added).

[^114]: *Id*.

[^115]: *See supra* note 109 and accompanying text.

[^116]: Grant, *supra* note 108.

[^117]: *See* *Rock Expects £30bn Loan this Year*, [BBC
    News]{.smallcaps} (Nov. 7, 2007), *available at*
    <http://news.bbc.co.uk/1/hi/business/7073556.stm> (last visited July
    8, 2008).

[^118]: *See* *Crisis Deepens for Northern Rock*, [Reuters]{.smallcaps}
    (Sep. 17, 2007), *available at*
    <http://www.iht.com/articles/2007/09/17/asia/17northern.php> (last
    visited July 8, 2008).

[^119]: *See* Stephen Castle, *EU to Investigate Northern Rock
    Nationalization in Britain*, [International Herald
    Tribune]{.smallcaps} (April 2, 2008), *available at*
    <http://www.iht.com/articles/2008/04/02/business/rock.php> (last
    visited July 8, 2008).

[^120]: *See* *British Regulator Admits Failings in Oversight of
    Northern Rock, Announces New Procedures*, [Associated
    Press]{.smallcaps} (March 26), 2008, *available at*
    <http://www1.wsvn.com/news/articles/world/MI81198/> (last visited
    July 8, 2008).

[^121]: *See* Castle, *supra* note 119.

[^122]: *See supra* notes 41-60 and accompanying text.