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Senate Derivatives Oversight Hearing Seen in July
Tue Jun 25, 2:29 PM ET
WASHINGTON (Reuters) - The U.S. Senate is expected to review a proposal in early July for federal regulation of the vast over-the-counter energy derivatives market, after the collapse of energy trader Enron Corp., Senate Agriculture Committee Chairman Tom Harkin said on Tuesday.
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Derivatives are exempt from federal regulation, due in part to aggressive lobbying several years ago by Enron and other large trading firms. California Democrats have pushed for closer oversight following Enron's bankruptcy and disclosures about the company's questionable electricity trading practices.
Derivatives are private transactions between companies and financial firms used to manage risks in interest rates, currencies and commodity prices.
The latest proposal, submitted by Democratic Sen. Dianne Feinstein of California, would give the Commodity Futures Trading Commission oversight over all over-the-counter traded energy and metals derivatives markets, often used by Enron.
Harkin, an Iowa Democrat, said the committee was gathering information about the issue but he had not reached an opinion on the proposal yet. The hearing probably would be around July 10, aides said.
The Senate Agriculture Committee has jurisdiction over the Commodity Futures Trading Commission (CFTC), which oversees financial and commodity futures trading on U.S. exchanges like the Chicago Board of Trade and the New York Mercantile Exchange.
Senators earlier squelched Feinstein's attempt to mandate regulation of the multibillion-dollar market in over-the-counter (OTC) energy derivatives. But the uproar over Enron-style energy trading tactics has revived it.
"I don't know if we'll have time to act before the (November) elections," Harkin told reporters in response to questions of how far Feinstein's plan would advance.
The CFTC and the Federal Energy Regulatory Commission ( news - web sites) already are investigating the trading practices of dozens of energy firms to determine if the practices exacerbated the California electricity crisis that began in late 2000.
Harkin announced plans for the hearing during a committee session devoted to examining four nominees to agricultural agencies. Two of them, Walter Lukken and Sharon Brown-Hruska, have been nominated for seats on the CFTC.
Asked by Sen. Richard Lugar, Indiana Republican, about the proper level of regulation of metals and energy "swaps," Lukken said the CFTC had the power to move against anti-competitive activities and it recently issued subpoenas to a number of energy firms that may have engaged in "round-trip" trading.
Such so-called wash trades involve the simultaneous sale and purchase from the same party of natural gas or electricity in order to inflate revenue and trading volumes.
Wash trades came under scrutiny as part of investigations into whether trading practices contributed to the California power crisis of late 2000 and early 2001.
The results of the CFTC review could help determine if changes in oversight are needed, Lukken said. The recent reauthorization of the CFTC also allowed regulators to apply different levels of oversight to market participants, he said.
"If policy-makers make that decision, we will abide by that," Lukken said.
Brown-Hruska, the other nominee, concurred with Lukken's reply, saying it was "appropriate and good" for the CFTC to look into the matter and assure lawmakers the agency would comply with whatever decision they reached on jurisdiction.
Lukken was an Agriculture Committee staff member and was active in work on the 2000 reauthorization of CFTC. Brown was a college professor and a former CFTC economist.
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European Stock Agencies to Merge
Thu Jul 4, 1:05 PM ET
By BRUCE STANLEY, AP Business Writer
LONDON (AP) - European settlement agency Euroclear agreed to merge with its London-based counterpart CrestCo Ltd., the companies said Thursday, creating Europe's largest system for transferring ownership in the trading of shares and bonds.
The deal marks another step forward in the fitful consolidation of Europe's capital markets. The new business would serve the London Stock Exchange, the Irish Stock Exchange and Euronext — the joint operator of bourses in Paris, Brussels and Amsterdam. It also would serve Virt-x, a platform for trades of stock in blue-chip companies from Switzerland and elsewhere in Europe.
The combined business would settle trades for more than 60 percent of Europe's 300 biggest shares and 52 percent of its domestic bonds, the two agencies said. The union, planned for completion by September, still must be approved by shareholders in both companies and by European competition authorities.
Euroclear, based in Brussels and Paris, and CrestCo said they expected the merger to lead to lower transaction costs for customers, through the creation of a single trading platform.
The two agencies last year settled 120 million transactions worth more than 140 trillion pounds ($213 trillion). The new group would seek to cut cross-border settlement costs in Belgian, Dutch, French, Irish and British securities by more than 90 percent, they said.
CrestCo spokesman Paul Symons said the union would be a horizontal merger of equals, although CrestCo would nominate just seven of the new group's 26 non-executive directors. Euroclear would name the 19 others.
CrestCo would become a subsidiary of Euroclear Bank, which is owned by Euroclear. Each CrestCo share would be exchanged for 31.5 shares in Euroclear.
The two agencies haven't calculated or announced a value for the planned transaction, Symons said.
The new group, to be fully consolidated by 2008, would keep the mutual-ownership structure of its two component agencies.
Most of the deal's benefits for customers would come with the introduction of its single settlement system in 2005, said CrestCo chief executive Hugh Simpson, who is to become deputy chairman of the new group.
Euroclear posted a net profit last year of 84 million euros ($82 million) on revenues 827 million euros ($810 million). CrestCo reported an annual net profit of 8 million pounds ($12 million) on revenues of 79 million pounds ($120 million).
In an earlier case of regional consolidation, shareholders in Britain's main financial derivatives market — the London International Financial Futures and Options Exchange — agreed to a 555 million pound ($844 million) buyout by Euronext in December.
Consolidation of Europe's markets suffered a setback in September 2000, when the London Stock Exchange abandoned a planned merger with Germany's Deutsche Boerse to fight off a hostile takeover attempt by Sweden's OM Gruppen. Backers of the doomed Anglo-German merger had envisioned it as the potential core of a single European exchange and a precursor to an alliance with the Nasdaq Stock Market in the United States.
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