Mr. Viola said, "Episodes like this one, where a major participant fails, heighten the awareness that the Exchange is a safe haven, and that the benefits to doing business on a regulated marketplace hold enormous appeal, or should, to any corporation with credit or price exposure to energy. We believe that corporate boards and treasury offices should become more involved as a matter of their fiduciary obligations to their employees and shareholders to learn about the differences between regulated and unregulated marketplaces."
Mr. Viola also testified that, while data so far does not indicate that the failure of Enron was related to rules, or the absence of rules governing trading in energy contracts, and is not calling for significant changes in the way over-the-counter markets are regulated, the Exchange still retains its opposition to differences in regulatory oversight of electronically traded energy and metals futures contracts.
Mr. Viola reminded the committee that during the recent debate over the Commodity Futures Modernization Act, the Exchange strongly resisted the exemption from federal regulatory oversight of electronic platforms that offered trading in energy and metals futures contracts. Mr. Viola credited Committee Chairman Senator Jeffrey Bingaman; Senators Charles Schumer, Richard Lugar, and Tom Harkin; and Representatives Carolyn Maloney, Peter King, and John Dingell, among others, who were responsible for modifications to the exemption because they "recognized the serious policy flaws with this extreme deregulatory measure, and quite courageously challenged Enron and others, preventing it from becoming law in its most draconian form."
Mr. Viola pointed out that, while little is known about the volume done on EnronOnline, Enron's electronic trading system, it undisputedly was his exchange, not Enron, "which represented the largest forum for the trading of natural gas, crude oil, and other energy products, by a wide margin, notwithstanding (or perhaps because of) the vastly uneven regulatory schemes governing our respective conduct."
In order for regulated exchanges to remain a viable alternative to unregulated markets, Mr. Viola stressed that Congress and the CFTC must continue to provide the "flexibility to exchanges to innovate -- to continue to serve the commercial needs of the community, whether oil producers, refiners, farmers, or financial institutions -- free of the micro-management of regulations yet within a framework that maintains public confidence."
He said that over the past decade, the Exchange has consistently supported and advocated the need for the market oversight (position limits, large trader reporting and surveillance) that the centralized markets provide. "We believe that CFTC oversight is appropriate and beneficial in areas that provide oversight and uniform standards aimed at protecting the ongoing financial integrity, market integrity and trade practice integrity of the marketplace. We believe that correct emphasis has been placed on the financial integrity and trade practice protections that the self-regulatory structure of this industry has always provided. The deepest, most liquid markets--that provide the most efficient price discovery and risk shifting-- occur on the centralized market, where market and financial integrity oversight is a routine part of doing business."
In closing, Mr. Viola said, "Chief among the lessons to be taken from the Enron bankruptcy is the value provided by the federally chartered, regulated commodity marketplace in supplying market oversight and credit enhancement. The ability of market participants to move from largely unregulated trading platforms to the Exchange where transparency, liquidity, and market oversight are the watchwords, proved to be of critical value in avoiding broad ranging disruptions as Enron's problems became known. The situation could have been far different had the unwise proposal to nearly completely eliminate regulatory oversight of energy and metals futures and options contracts traded on electronic trading platforms been adopted."
