Commodity Futures Trading Commission 

Office of External Affairs

Three Lafayette Centre 

 1155 21st Street, NW 

Washington, DC 20581 

 202.418.5080

Remarks 

Remarks of Acting Chairman Walter L. Lukken

Hearing to Examine Trading on Regulated Exchanges 

and Exempt Commercial Markets 

September 18, 2007 

It is a great pleasure for me and my fellow Commissioners to welcome you to today’s hearing on 

Exempt Commercial Markets (ECMs). I would like to thank all of the distinguished panelists for 

being here to share their views and expertise with the Commission. 

The proper regulation of the nation’s energy markets is one of the most significant issues facing 

this Commission. Energy prices discovered on these markets greatly impact our economy and 

every American—ranging from residential consumers to main street businesses to Wall Street 

firms. 

It is this Commission’s mandate to ensure that our energy markets remain free of price 

distortions and fraud. Recent hearings before Congress have highlighted concerns that these 

markets are subject to abuse and not adequately reflecting the fundamentals of supply and 

demand. Whether this perception has a basis in fact is the subject of today’s hearing but

regardless, this doubt is troublesome because it could keep potential users from managing risk or 

benchmarking prices in these markets. This should be of primary concern as we scrutinize the 

regulatory framework of these markets today. 

In 2000, Congress created a tiered regulatory structure for the futures markets with the passage 

of the Commodity Futures Modernization Act (CFMA), which attempted to tailor regulatory 

requirements to the specific risks of the marketplace. This calibrated structure has provided 

regulators with the proper flexibility and focus as we strive to keep pace with this industry’s 

global growth. One cannot argue with the success of the U.S. futures industry—as demonstrated

by its fourfold volume growth since the CFMA’s passage, as well as its growing global market 

share. 

Within this tiered design, Congress created a light touch regulatory category called Exempt 

Commercial Markets or ECMs, on which certain commodities, such as energy, could be traded 

by institutional participants. Due to the non-retail nature of these markets and their modest
beginnings, policymakers believed the risks associated with these institutional exchanges to be

low. 

However, the energy markets have changed dramatically in these seven years and the 

Commission’s regulation of these markets should evolve in kind. Although these exempt

markets have increased competition and lowered costs for derivatives trading, certain ECMs now 

function as virtual substitutes to regulated exchanges with tight correlation and linking of prices. 

 

Today, the Commission will re-examine the legal and regulatory structure of these markets—

noting meaningful similarities and distinctions. In addition to the testimony of affected groups, 

we will first hear from CFTC staff who will report on their extensive interviews with market 

participants and their economic analysis on the price discovery functions of ECMs. This broad 

range of discussions will be valuable as the Commission aims to complete the evidentiary record 

and provide timely findings to Congress. 

In doing so, we must remain true to the risk-based philosophy of the CFMA and be mindful of 

the potential impact any changes would have on the competitiveness of these global electronic 

markets. But the heart of the debate will turn on whether the Commission has the proper tools to 

uphold its core mission – to ensure that these markets are fair, open and transparent, free from 

manipulation and fraud. This will be our primary focus today. 

We look forward to hearing from our distinguished witnesses and I now turn to Commissioner 

Dunn for his opening remarks. 

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