Public Citizen’s beef with some dirty off-the-radar tactics that are loosely referred to as financial speculation goes back many years. However, most recently, the debate we’ve been waging about the increased use of financial speculation has finally started to get the attention it deserves. Over the last six months obstructionists in Congress have attempted to derail provisions of the Dodd-Frank Wall Street Reform Act that would better regulate big banks and oil companies who are increasingly engaging in speculative practices that manipulate the market to the benefit of the 1 percent with complete disregard of the costs to the rest of us, the 99 percent.
Today, Sen. Carl Levin (D-MI) held an important hearing: “Excessive Speculation and Compliance With the Dodd-Frank Act.” In his opening remarks he noted that, “Congress enacted the new law, not only to protect consumers and businesses from unreasonable prices–prices disconnected from the usual supply and demand discipline of the market place–but also to protect the commodity markets themselves from losing investor confidence and looking more like a casino or rigged game than a marketplace where supply and demand determine prices.”
Public Citizen’s Energy Program Director Tyson Slocum was one of the key witnesses called to testify at the hearing. Slocum told the U.S. Senate Committee on Homeland Security and Governmental Affairs’ Permanent Subcommittee on Investigations:
“Banks dominate energy trading markets through their role as swaps dealers and as managers of index funds, which facilitates successful proprietary trading operations. While the new CFTC rules help to rein in the Wild West feature of energy commodity markets, consumers still are plagued by unreasonably high prices.”
Public Citizen recommends the following reforms to address the harmful impact of excessive speculation has on families:
- Enhance position limits as articulated in the Anti-Excessive Speculation Act of 2011 (S.1598 and H.R. 3006). This legislation not only defines excessive speculation, but also establishes a statutory 5 percent position limit level. This statutory threshold provides greater certainty and better establishes strong consumer protections into law.
- Restrict communication between petroleum energy infrastructure affiliates and trading affiliates. A starting place could be limits on communications between natural gas pipeline and energy trading affiliates. Such rules do not exist for petroleum product pipelines and storage, but should.
- Improve trading market data disclosure by publishing trader-specific positions. This summer, Public Citizen worked with the office of Sen. Bernie Sanders (I-Vt.) to help make public trader-specific energy trading position data. Regular public disclosure of such data is essential for market transparency and to educate the public on who the individual traders are who help set energy prices.
- Modify disclosure policies of the Securities and Exchange Commission (SEC) to require companies to detail energy trading activities in their financial reporting. Currently, companies are under no obligation to disclose commodity-specific information on their volumes, prices or profits from energy trading.
- Impose financial disincentives to speculate, such as instituting a financial transaction tax or disallowing favorable capital gains tax treatment for energy commodity trading.
- Prohibit index funds and mutual funds from investing directly or indirectly through Exchange-Traded Funds (ETFs) from commodity markets.
To read the testimony of Tyson Slocum, visit: https://www.citizen.org/documents/TysonHSGACspeculation.pdf. And, for more background on this debate over the last six months please read this.