US Sen Cantwell Asks CFTC To Revoke ICE No-Action Letter
June 04 2009 - 5:51PM
Dow Jones News
U.S. Sen. Maria Cantwell, D-Wash., said Thursday she will push
the new chairman of the U.S. Commodity Futures Trading Commission
to revoke a no-action letter that she says has allowed
IntercontinentalExchange's (ICE) ICE Futures Europe to skirt
federal regulations.
Gary Gensler, who was sworn in as the new chairman of the CFTC
last week, told lawmakers this week that his staff is undertaking
an extensive review of the no-action process. That process
essentially allows foreign boards of trade to offer electronic
trading to U.S. residents. The no-action letters, which are granted
by CFTC staff, let the boards avoid registering as exchanges with
the CFTC and protect them from U.S. enforcement action.
But the no-action process came under fire in 2006 after ICE
Futures Europe, which already had a no-action letter dating back to
1999, began offering several futures and options contracts that
were based on the settlement prices of U.S. contracts such as West
Texas Intermediate crude oil.
The move was controversial because some lawmakers like Cantwell
feared these "look-alike" contracts, which weren't subject to CFTC
oversight, could be used to manipulate oil prices. Some dubbed it
the "London loophole" because it allowed traders to skirt federal
position limits.
In addition to concerns over manipulation and excessive
speculation, some claimed that ICE Futures Europe shouldn't even be
considered a foreign board of trade because it is a wholly owned
subsidiary of an Atlanta, Ga.-based company. The no-action letter
it had received dated back to 1999 before it was bought by a U.S.
company.
As oil prices climbed to record highs last year, the CFTC sought
to rectify the controversy and announced a special agreement with
ICE Futures Europe and the Financial Services Authority, which
regulates financial markets in the U.K. Under the agreement, the
FSA pledged to provide the CFTC with large trader position data
from the look-alike WTI contract and notify U.S. regulators when
traders exceeded accountability levels.
Around the time the agreement was struck, Cantwell sent a letter
to the CFTC saying that the agreement wasn't good enough in part
because it still gave too much authority to U.K. regulators and
didn't give CFTC direct oversight over the contract.
Cantwell, who blocked Gensler's nomination to the CFTC for
months and was one of six senators to vote against him, said
Thursday she asked him to immediately revoke the ICE Futures Europe
no-action letter during a conversation with him Wednesday.
"I emphasized with him how important this was," she said, noting
that he doesn't need to wait for congressional action to revoke a
no-action letter. "This is a test in my mind to how strong he'll be
as a CFTC head. If he's not going to take a tough stance on this,
I'm not sure how strong he'll be on the rest of this stuff."
ICE declined to comment on Cantwell's complaints.
In January, the CFTC took steps to solidify oversight over
certain foreign boards, saying that any foreign board of trade that
receives a no-action letter and offers a contract based on a U.S.
futures contract will be subject to the same conditions as those
imposed on ICE.
But Gensler suggested in congressional testimony Thursday that
the CFTC wants to go beyond administrative changes, and asked for
authority from Congress to enforce position limits and reporting
requirements on traders who use terminals in this country to trade
U.S. look-alike contracts through foreign boards of trade.
When asked if he will consider revoking any no-action letters
that have been granted over the years to foreign boards of trade,
Gensler told reporters: "I've directed the staff that all options
are on the table."
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com.
(Gregory Meyer contributed to this report.)