Legislation Would Disallow Speculation in Energy Commodity Index Funds

WASHINGTON (February 15, 2013) – Two top House Democrats are again introducing legislation that would help hand back control of investments in oil and other energy commodities to airlines, trucking companies and other legitimate investors, and help dull the expensive impacts speculators are having on our oil and other energy prices. The legislation would tell Wall Street speculators that they can no longer invest in these financial products if they include energy, and phase out oil and other energy commodities from current index funds. Eventually, this will put more control back into the hands of companies and investors who have a real stake in the price of oil for their business, not just to make a quick buck.

The bill is called the Halt Index Trading of Energy Commodities (HITEC) Act and was introduced Friday, February 15 by Rep. Ed Markey (D-Mass.) with Rep. Rosa DeLauro (D-Conn.). The previous version of the bill had 25 co-sponsors in the 112th Congress.

Commodity index funds are financial products that allow customers to purchase a wide range of commodities without having to actually physically possess and use those commodities. First created by Goldman Sachs in 1991, these products have grown explosively in recent years. Commodity index traders now collectively comprise the single largest group of non-commercial participants in commodity markets, giving them significant power over both our commodities markets, and even the price of products like gasoline and bread. Yet, while these indexes have driven up energy prices for average consumers, they have brought poor returns for investors, with Standard and Poor’s GSCI index garnering a return of just .08 percent in 2012.

“These products hurt consumers, hinder small business, and provide poor returns to their own investors. It’s time to put this ill-advised financial product out to pasture,” said Rep. Markey, who is the Ranking Member of the Natural Resources Committee. “This bill will get the gasoline gamblers out of the markets, easing pressures at the pump for consumers and small business and restoring supply and demand as the primary forces driving our energy commodities markets.”

“High oil prices affect every aspect of Americans’ lives – not just the cost of traveling, but of heating homes, food and other purchases,” said Rep. DeLauro. “The cost of gas is irrefutably affected by rampant speculation in the oil market. Congress should be representing American consumers, not oil speculators and this legislation moves us in the right direction.”

This bill would prohibit new investments in commodity index funds with energy commodities by speculators as of the date of enactment. It would also grant existing commodity index funds that fall under this ban two years to wind down their energy commodity investments.  After that, commodity index funds would not be allowed to own energy commodity futures, swaps, or derivatives if they count speculators among their investors.

This bill covers both exchange-traded energy commodities and the over-the-counter swaps market. The bill does not cover agricultural commodities like wheat or metal commodities like gold. It also does not involve the trading of electricity in any way.

Contact: Eben Burnham-Snyder, Rep. Ed Markey, 202-225-2836