Month of July, 2007

A U.S. Senate report issued two weeks ago on the Amaranth meltdown makes three recommendations which call for greater oversight of energy markets. It wants Congress to eliminate the "Enron loophole" to give the Commodity Futures Trading Commission (CFTC) regulatory power over both the NYMEX and ICE (electronic, over-the-counter exchanges), allow the CFTC to monitor aggregate positions on both exchanges, and raise the CFTC's budget authorizing them to collect fees to offset the cost of the additional oversight. The Senate report, while not actually accusing the hedge fund of any price manipulation, criticized "excessive speculation" which (in its opinion) altered natural gas markets causing increased volatility and impacting consumer prices. Amaranth at one point held 70 percent or more of the outstanding contracts on the NYMEX and when told to reduce that position, it did so but then increased its holdings on the ICE instead.