Energy Industry Wary of Increased Derivatives Regulation

In the wake of the housing crisis, the Treasury Department and other regulators want financial derivatives to be traded through a central counterparty—but the energy industry is claiming such measures will make it harder to manage price risk.

Oil and natural gas futures, which have seen great price volatility due to speculative trading, are already under regulatory pressure from the Commodity Futures Trading Commission.

Advocates of the Obama administration’s system say a counterparty increases transparency while permitting companies to trade with more partners.

According to the Wall Street Journal, new rules would require that if a given derivative is handled through the counterparty, any similar contracts must also go through the same system.

The Treasury Department has already noted that clearinghouses must ensure that “customized” derivatives not be created and used solely to avoid going through the counterparty.

Some trading firms may oppose the system, which they say could increase expenses and create the need for higher collateral requirements.

Return to June 2009 Western Energy News

To sponsor Western Energy News, please contact WEI at 503 231-1994.