Exchanges Up Defenses Against Moves To Curb Speculation

   By Doug Cameron 
   Of DOW JONES NEWSWIRES 
 

CHICAGO -(Dow Jones)- IntercontinentalExchange Inc. (ICE) intensified its defense Wednesday against charges that the commodity specialist has been a lightning rod for concerted efforts by speculators to drive up global energy prices.

The London-based energy exchange operated by Atlanta-based ICE has been the focus of congressional efforts to blame "unregulated speculators" for pushing oil prices to record levels.

A flurry of bills have been lined up ahead of the summer recess in Congress aimed at curbing what lawmakers view as "excessive" levels of market speculation.

Executives at ICE and other U.S. futures exchanges have warned that some of these efforts are misguided and risk driving business to more lightly-regulated venues in Asia and the Middle East.

Jeff Sprecher, chairman and chief executive, highlighted the concerns in a letter to the online edition of BusinessWeek, a U.S. magazine.

"As many highly regarded regulators, analysts, and economists have suggested, given the complex global economic fundamentals at play, we believe it unlikely that there is a single culprit or a quick-fix solution," said Sprecher in response to an article arguing speculators had driven up oil prices.

Sprecher repeated his assertion that the London-based ICE Futures Europe unit was not "unregulated" because of its oversight by the U.K. Financial Services Authority. The FSA has a reciprocal oversight agreement with the U.S. Commodity Futures Trading Commission.

Regulatory Creep

Executives at U.S. futures exchanges are concerned about the potential for what they view as "misguided" efforts in Congress to curb speculation in the oil market being applied to other asset classes.

Speculation is see by executives and traders as crucial to the efficient operation of futures markets, boosting liquidity and price discovery. While most lawmakers acknowledge the role of speculators, the efforts have focused on what is referred to as "excessive speculation" in the Commodity Exchange Act.

The myriad of congressional calls for action have included bills proposing higher margin limits, bars on investment by index funds and a requirement that all energy contracts be physically settled, a move that would force speculators from the market.

Most of the focus from the congressional bills and hearings has been on energy markets, though some have addressed the surge in agricultural commodity prices.

"This is all about gas prices and domestic U.S. politics," said one Washington D.C.-based futures industry executive.

The House Agriculture Committee will hold three hearings next week examining the oversight and operation of the energy futures market.

Airlines Intensify Lobbying

While exchanges and traders argue that supply and demand conditions are driving prices of oil and other commodities, a powerful political lobby continues to blame speculation.

Glenn Tilton, chairman and chief executive of UAL Corp. (UAUA) and a former oil industry executive, said the airline industry was pressing for Congress to pass legislation by the end of July.

Tilton said in message to United Airlines’ employees Tuesday that the industry’s trade body had asked U.S. Sen. Dick Durbin, D-Ill., to "lead the fight to address rising fuel prices - specifically the effects that excessive speculation are having on the oil markets".

Durbin has been receptive to the airline industry’s calls in the past, proposing a bill in 2005 that would have created a strategic national jet fuel reserve in the U.S. in an effort to lower prices.

Tilton said U.S. airlines are expected to lose $20 billion this year as they struggle with a fuel bill around $20 billion higher than in 2007.

ICE Volumes Up 15%

Separately, ICE reported Wednesday that average futures trading volumes rose 15% in June compared with the same period in 2007, while commissions from its over-the-counter business climbed 48%.

Volumes in the West Texas Intermediate contracts traded on its London exchange rose 12.6% in June, while trading at its New York-based agricultural commodities exchange climbed 13%.

ICE shares were down 4.4% at $110.10 in recent trading.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

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(END) Dow Jones Newswires

July 02, 2008 12:23 ET (16:23 GMT)

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