Prices for four energy commodities--crude oil, heating oil, unleaded gasoline, and natural gas--have risen substantially since 2002. Some observers believe that higher energy prices are the result of changes in supply and demand. Others believe that increased futures trading activity has also contributed to higher prices. This report, conducted under the Comptroller General of the United States' authority, examines (1) trends and patterns in the physical and energy derivatives markets, (2) the scope of the Commodity Futures Trading Commission's (CFTC) regulatory authority over these markets, and (3) the effectiveness of CFTC's monitoring and detection of market abuses and enforcement. For this work, GAO analyzed futures and large trader data and interviewed market participants, experts, and officials at six federal agencies.
Matter for Congressional Consideration
|In light of recent developments in derivatives markets and as part of CFTC's reauthorization process, Congress may wish to consider further exploring whether the current regulatory structure for energy derivatives, in particular for those traded in exempt commercial markets, provides adequately for fair trading and accurate pricing of energy commodities.||When Congress passed Dodd-Frank, this matter was addressed. On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The derivatives legislation set forth in Title VII of the Act repeals prior regulatory exemptions for over-the-counter (OTC) derivatives, including energy derivatives, and imposes a regulatory framework upon the OTC derivatives market. In addition, Title VII of the Act provides substantial authority to the Commodity Futures Trading Commission with respect to position limits for certain swaps and may change the standards for determining manipulation.|
Recommendations for Executive Action
|Commodity Futures Trading Commission||To improve the oversight and available information on energy futures trading, the Acting CFTC Chairman should reexamine the classifications in the Commitment of Traders reports to determine if the commercial and noncommercial trading categories should be refined to improve the accuracy and relevance of public information provided to the energy futures markets.|
|Commodity Futures Trading Commission||To improve the oversight and available information on energy futures trading, the Acting CFTC Chairman should explore ways to routinely maintain written records of inquiries into possible improper trading activity and the results of these inquiries to more fully determine the usefulness and extent of CFTC's surveillance, antifraud, and antimanipulation authorities.|
|Commodity Futures Trading Commission||To improve the oversight and available information on energy futures trading, the Acting CFTC Chairman should examine ways to more fully demonstrate the effectiveness of CFTC enforcement activities by developing additional outcome-related performance measures that more fully reflect progress in meeting the program's overall goals.|