Futures Exchange Warns Obama Administration Not To Confuse Speculation with ManipulationTue, 17 Apr 2012 14:42:06 CDT
President Barrack Obama outlined several steps he would like to see Congress take to police energy markets and reduce the possibility of market manipulation. One of his proposals was that "Congress should give the agency responsible for overseeing oil markets new authority to protect against volatility and excess speculation by making sure that traders can post appropriate margins, which simply means that they actually have the money to make good on their trades."
Market experts were quick to caution the President to approach a solution to the problem properly, lest greater harm be done to consumers.
CME Group, the world's leading and most diverse derivatives exchange, released the following statement regarding the administration's proposal to increase oversight of energy markets:
"CME Group agrees that manipulation is detrimental to markets and should be vigorously policed, as is currently being done. However, we caution against mistakenly categorizing speculation as a form of manipulation. Market makers and speculators serve an important function in the market - allowing energy users and producers to manage oil price risk and providing the necessary liquidity to ensure effective price discovery and more efficient transfer of price risk.
"The administration's proposal to use margin requirements to control cash prices is misplaced. The administration must recognize that exchanges, as the operators of regulated energy markets, are in the best position to monitor volatility and manage margin requirements. Margins are based on volatility and cannot be used to manage cash prices. Rather, they serve as important tools for CME Group and other exchanges to use in managing the financial risks of the clearing houses we operate, which are a key component of the risk management policies being put into effect under Dodd Frank. Additionally, taking away from exchanges the ability to manage margins would make the markets less efficient, less tied to fundamentals and would create the potential to push the hedgers out of the market, which would make oil more expensive for all consumers."
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