Senate oil speculator bill drops higher margins
WASHINGTON (Reuters) - In a big win for the U.S. futures industry, new Senate legislation unveiled on Wednesday would not impose higher margins on oil traders but would still aim to rein in excessive speculation in energy markets.
Futures markets participants had feared that earlier legislation introduced by Sen. Byron Dorgan to boost significantly the amount of money, or margin, that speculators would have to put up to trade oil futures would make it into the final anti-speculation bill.
Dorgan had sought to increase margins for speculators to 25 percent of the underlying value of the oil -- much higher than the current 5 to 7 percent margin requirements. But when Senate Majority Leader Harry Reid unveiled the bill on Wednesday morning, he left out the higher margins, apparently to win more support for the measure.
Higher margins would have made it more expensive to trade in U.S. futures markets such as the New York Mercantile Exchange. Futures industry officials had warned that if margins were significantly raised, the United States would lose business to overseas exchanges or less-regulated U.S. markets.
Still, Reid's bill would require the Commodity Futures Trading Commission to distinguish between true hedgers, like airlines, that buy and sell oil futures to offset the risk of high fuel prices, and speculators who bet on the price of oil and never intend to take physical delivery of the crude.
The CFTC would have to convene a panel of experts to help determine the tough position limits that should be imposed on speculators, which would restrict the number of oil futures contracts an individual speculator could control in a delivery month.
Reid said on Wednesday that he hopes to bring the bill to the Senate floor for a vote "in the near future." A Reid aide said the legislation may come up for vote at the end of this week or early next week.
He said the bill "is not perfect," but it does attempt to rein in hedge funds, investment banks and other speculators whose trading activities Reid said accounts for about 30 percent of the cost of gasoline.
Dorgan praised the bill, saying it would clamp down on the "orgy of speculation" going on in energy futures markets. The lawmaker said he wants to protect "legitimate hedge trading."
But Republicans want to link efforts to curb speculation to boosting U.S. oil production, and will push to amend the Democrats' anti-speculation legislation with language that expands offshore oil drilling and allows oil shale development in the Midwest.
"It's time to get about passing serious, balanced legislation that will make a difference," said Senate Republican Leader Mitch McConnell. "And it's clear the American people strongly support increased responsible domestic production."
(Reporting by Tom Doggett, editing by Matthew Lewis) 