Ferc unable to regulate OTC derivatives, admits own official

His comments were made as a leading Washington DC-based industry insider, who asked not to be named, said the Ferc should not be assigned the task of regulating energy derivatives in the US. “I’m not sure it’s the right group,” he said. “Basically, there aren’t more than 10 people at the Ferc who understand the importance of risk management to the energy industry.”

He added: “Expecting the Ferc to oversee regulating [OTC] derivatives trading is just crazy. And I’m sad to say that, because in the long term it is going to be the industry’s biggest issue, and the Ferc should be involved.”

The source added that the Ferc was fundamentally a paper factory, which goes against its real job of monitoring markets. “It’s about knowing the neighborhood. The Ferc is a police unit that’s supposed to police a Hispanic neighborhood – without a single Hispanic cop on the force.”

Energy derivatives have been exempt from regulation since Congress passed the Commodity Futures Modernization Act in 2000. But democratic senator Dianne Feinstein is trying to push a bill through Congress that would put energy derivatives firmly in the Ferc and the CFTC’s control.

Feinstein’s bill would make over-the-counter energy derivatives trades comply with reporting, record keeping, registration and capital reserve requirements similar to those that apply to regulated exchanges. The bill was defeated in February this year, but as new details of Enron’s behaviour and market abuse are released, the bill has found a second wind.

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