LONDON (HedgeWorld.com)–The chairman of the Commodity Futures Trading Commission sought to alleviate concerns that the CFTC sought to extend its authority over unregulated swaps, in a speech to the international derivatives conference of the Futures Industry Association/Futures Option Association in London.
The question of extended authority arose because of charges the CFTC brought against Enron Corp in March. The CFTC contended that in September 2001 Enron had modified its web-based electronic trading platform in ways that crossed the line from a true swaps platform to a (illegal, unregulated) futures exchange.
“We approach the issues of whether the Commodity Exchange Act applies to, and whether we have jurisdiction over, any particular transaction on the basis of the economic substance of the transaction,” said CFTC Chairman James Newsome. “Thus, where we have brought charges alleging operation of an unregistered futures exchange that involved the trading of contracts that may have been labeled or referred to as, quote, ‘swaps,’ it is because the economic substance of those transactions was that of a futures contract.”
He added that, in his view, U.S. Congress had acted appropriately in excluding “true swaps and forwards” from CFTC jurisdiction.
He noted, too, that there has been a good deal of enforcement activity of late, some of it resulting in multi-million dollar civil monetary penalties in the energy trading area. He did not name respondent companies in this speech, but much of his audience would have been aware, for example, that El Paso Corp., Houston, agreed to pay US$20 million in March to settle CFTC allegations that it reported fake natural gas trades to industry publications to influence the market.
“We remain actively engaged in other energy sector investigations, which may result in further charges being filed” against market participants, he said.