NYMEX today issued the following statement regarding the Consumer-First Energy Act of 2008, a bill introduced today by Senate Democrats:
NYMEX recognizes that there is broad concern over current crude oil price levels, and we support the legitimate work that Congress is doing to address high energy prices and to protect consumers. However, with regard to the current Senate energy bill, NYMEX believes the subsection dealing with margins is misguided in at least four respects.
First, in a highly transparent, regulated and competitive market, prices are affected primarily by fundamental market forces and imposing more onerous margin levels will not affect price levels. Currently, uncertainty in the global crude market regarding geopolitical issues, refinery shutdowns and increasing global usage, as well as devaluation of the U.S. dollar, are now market fundamentals. Second, in futures markets, margins function as financial performance bonds and are employed to manage financial risk and ensure financial integrity, not restrict or manage trading activity.
Third, the data consistently indicates that the percentage of open interest in NYMEX crude oil futures held by non-commercial participants (relative to commercial participants) actually decreased over the last year even at the same time that prices were increasing. Fourth, given the reality of global competition in energy derivatives, increasing crude oil margins on futures markets regulated by the U.S. Commodity Futures Trading Commission inevitably will force trading volume away from regulated and transparent U.S. exchanges onto dark unregulated venues and onto less transparent overseas markets.
Finally, over the last several years, NYMEX has worked closely with Congressional leaders and has provided information and other assistance to the CFTC on policy initiatives passed by the Senate last December that would add greater transparency to unregulated derivatives venues. Regrettably, this proposed margin provision, which would push trading from regulated and transparent markets to unregulated and nontransparent markets, would constitute a significant step backward in transparency and market integrity.
About NYMEX Holdings, Inc.
NYMEX Holdings, Inc. (NYSE: NMX) is the parent company of the New York Mercantile Exchange, Inc., the world's largest physical commodities exchange, offering futures and options trading in energy and metals contracts and clearing services for more than 400 off-exchange contracts. Through a hybrid model of open outcry floor trading and electronic trading on CME Globex® and NYMEX ClearPort®, NYMEX offers crude oil, petroleum products, natural gas, coal, electricity, gold, silver, copper, aluminum, platinum group metals, emissions, and soft commodities contracts for trading and clearing virtually 24 hours each day. Further information about NYMEX Holdings, Inc. and the New York Mercantile Exchange, Inc. is available on the NYMEX website at http://www.nymex.com/.
