Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - July 10, 2008)

Ms. COLLINS. Mr. President, high energy prices are having a devastating impact on our economy and our people--especially in large, rural States like Maine. Truckdrivers, loggers, fishermen, farmers, and countless others are struggling with the high cost of oil and gasoline. In Maine, where 80 percent of homes are heated with oil, many families do not know how they can afford to stay warm next winter.

The high cost of energy is also taking a toll on businesses, both large and small. Katahdin Paper recently announced plans to shut down its plant in Millinocket due to the cost of oil. If this occurs--and everyone is working to prevent it--the community would be devastated by the loss of more than 200 good jobs.

Many factors affect energy prices, including the value of the dollar, global tensions, and demand in other countries, such as China and India. But Senator Lieberman and I have heard persuasive and troubling evidence in hearings of our Committee on Homeland Security and Governmental Affairs that another factor is also at work--excessive speculation in futures markets for energy commodities.

At issue is the activity of noncommercial traders who do not produce or take delivery of oil or agricultural products, unlike commercial traders such as oil producers and heating oil dealers, farmers and cereal companies. Instead, these noncommercial investors use futures contracts and related transactions solely for financial gain.

Speculation in commodity markets by noncommercial investors has grown enormously. In just the last 5 years, the total value of their futures-contract and commodity index-fund investments has soared from $13 billion to $260 billion.

These massive new holdings of oil-futures contracts by pension funds, university endowments, and other institutional investors appear to be driving up prices beyond what they would otherwise be. These investors' intentions may be simply to provide good returns, a hedge against inflation, and diversification, but many experts believe their activities are distorting commodity markets.

I have worked with Senator Lieberman to produce a comprehensive and bipartisan bill, the Commodity Speculation Reform Act of 2008, which we are introducing today.

Our bill takes some very strong steps toward countering excessive speculation.

First, it would remedy staffing shortfalls at the Commodity Futures Trading Commission by adding 100 staff to improve its market oversight and enforcement capabilities. This is a vital step. The CFTC tells us that more than 3 billion futures and options contracts were traded last year, up from 37 million in 1976. Yet the Commission is operating with fewer employees than it had 30 years ago.

Second, our bill closes the so-called ``swaps loophole,'' which currently allows financial institutions to evade position limits on commodity contracts that regulators use to prevent unwarranted price swings or attempts at manipulation.

Third, our bill directs the CFTC to establish position limits that will apply to an investor's total interest in a commodity, regardless of whether they originate on a regulated exchange, the over-the-counter market, or on foreign boards of trade that deal in U.S. commodities.

Fourth, our bill instructs the CFTC to permit no foreign boards of trade to deal in U.S.-linked commodity contracts unless they agree to reporting and data- accessibility standards at least equivalent to that required of U.S.-regulated exchanges. This is not a matter of telling other countries what to do: foreign boards of trade request ``no-action'' letters from the CFTC so they can maintain trading terminals here while remaining regulated by their own authorities. The CFTC has recently taken positive steps to require comparable reporting, and our bill codifies those improvements.

These are powerful measures, but they are also prudently designed. We recognize that producers, handlers, and purchasers of commodities who use those markets to lock in prices, hedge risks, and see clues for price trends require some level of participation by non- commercial, financial investors.

Our bill does not prevent financial investors from participating in commodity markets. It simply places some limits on their presence by directing the CFTC to set position limits across trading venues at a level no higher than that needed to ensure that commercial participants can always find counterparties for their contract needs.

These and other provisions of our bill--which applies to agricultural as well as energy commodities--will provide a stronger regulator, improved flows of information, new and more consistent protections against excessive speculation, and assurance to both businesses and consumers that our markets in basic commodities are transparent, competitive, and effectively policed.

The Commodity Speculation Reform Act of 2008 represents a balanced and bipartisan approach. I urge my colleagues to join Senator Lieberman and me in supporting it.

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