Isda to testify before Senate committee

Paul Lyon
10 Jul 2002

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Isda will also caution that proposals to alter the Commodity Futures Modernization Act (CFMA) of 2000will defeat the underlying policy objective of legal certainty for OTC derivatives. Isda officials will also note that the legal certainty provisions of the CFMA, and related provisions of the Bankruptcy Code (adopted in 1990), may have enhanced the ability of market participants to deal effectively with events such as the collapse of Enron.

Corporate governance, in which internal control mechanisms were compromised, ultimately led to Enron’s demise, not its use of OTC derivatives, Isda will continue.

In April, the US Senate blocked a measure to regulate the trading of OTC energy derivatives. Dianne Feinstein, a Democratic Senator from California, had proposed a bill amendment that would permit the CFTC to regulate OTC trading in energy and metals derivatives, in the wake of Enron’s collapse.

The measure was defeated on a routine procedural vote that required 60 affirmative votes for the amendment to advance. Feinstein’s proposals received 48 votes, forcing her to withdraw her amendment, admitting it lacked sufficient support at that time.

Although Isda claimed success from its Capitol Hill lobbying, shortly after Feinstein’s defeat a broad-based coalition of natural gas producers, service companies, consumer groups and utilities emerged calling on the US Congress and federal regulatory agencies to again consider regulating the OTC energy derivatives market.

The Coalition for Energy Market Integrity and Transparency, as the coalition is known, is supported by the American Public Power Association, Texas-based oil and gas exploration firm Apache and Feinstein, among others. In April, it warned its detractors that it was “armed with new evidence of apparent market manipulation” relating to last year’s Californian energy crisis.

“Enron may be gone, but its clones continue to amass market power that enables them to set the price of natural gas and electricity without any checks and balances whatsoever,” said a coalition spokesperson.