Since its formation in 2000, ICE has a demonstrated track record of working closely with regulators and industry participants to operate efficient, transparent markets, while achieving significant growth by virtually any measure.
• ICE is a global, diversified exchange operator with multiple regulated
exchanges and clearing houses in the U.S., Europe and Canada.
ICE has
purposefully built its business around serving the needs of commercial
market participants in energy, agriculture, credit and other key
markets.
• In response to volatile commodity prices, numerous studies were
conducted by government and independent agencies worldwide during 2008
and into 2009.
These studies largely concluded that supply and demand
remain the fundamental drivers of commodity prices rather than excess
speculation.
• In 2008, with the passage of the Farm Bill in Congress, ICE's
over-the-counter (OTC) energy markets became subject to increased
regulation by the CFTC for key contracts, such as the Henry Hub natural
gas swap, under what is known as the Significant Price Discovery
Contract (SPDC) regime.
• Also in 2008, the CFTC amended ICE Futures Europe's no action
letter to require ICE Futures Europe to adopt U.S.-style reporting,
position limits and position accountability levels for its energy
contracts that reference the settlement price of a U.S. designated
contract market.
Since the fall of 2008, ICE's U.S.-linked energy
futures contracts have been subject to regulation by the CFTC under an
amended no action letter, and today these contracts are subject to the
same rules and regulations that apply to the U.S. energy futures
exchange, NYMEX.
For the specific provisions that are now in effect,
please see ICE's press release dated June 17, 2008.
• ICE has expressed concern to the CFTC about the process in place today
for establishing position standards in the U.S. energy markets.
We look
forward to participating in the Commission's hearings and believe
they will provide a venue for the open, transparent dialogue necessary
to consider market impacts of the needed changes to the existing
position management regime.
• Current regulation by the CFTC mandates that ICE adopt the position and
accountability limits that its competitor, NYMEX, is presently
responsible for establishing.
ICE is provided no access to the
information needed to judge the suitability or size of these limits, nor
does it have access to the methodology or determining factors that NYMEX
used in deciding to grant over 115 hedge exemptions since 2006.
• Despite the substantial increase in the size of the energy markets,
including growth in contract volume, participants and physical
production, position limits in U.S. energy markets have remained
unchanged for years.
Therefore, it appears that hedge exemptions have
been increasingly granted to meet the needs of market participants in
today's large, global markets.
• Today we are seeing that position and accountability limits can
inadvertently result in the transfer of cleared, transparent positions
back into bilateral markets where neither limits nor reporting exist.
A
shift backward to opaque, bilateral markets decreases market
transparency and increases counterparty risk, both of which run counter
to proposals by the Treasury to bring bilateral positions into clearing
houses.
• The hearing process will allow the industry to examine how needed
modifications to the current position management regime might be better
structured, including how changes might affect volatility, prices,
market concentration and the prevention of settlement price
manipulation.
• The CFTC specifically noted in its recent statement a desire to focus on
the role of index funds and managers of Exchange-Traded Funds (ETFs).
Index funds and ETFs in ICE's U.S. energy markets account for an
immaterial amount of ICE's revenue. Index funds typically execute
their trades in the OTC broker markets rather than in ICE's markets
-- using ICE only to clear their bilateral positions -- and thus they
pay limited fees to the exchange.
Because trading activity generated by
index funds and ETFs generally is not part of the on-exchange price
discovery process, they typically do not provide volume interaction with
other participants in ICE's electronic execution markets.
