Bloomberg News

Gensler Warns of Risk of Energy ‘Loophole’ in Swap Dealer Rule

March 02, 2012

The U.S. Commodity Futures Trading Commission should limit the costs of the Dodd-Frank Act’s swap dealer regulation for commercial companies without creating a loophole for BP Plc (BP) and other energy firms, said Gary Gensler, the agency’s chairman.

The CFTC is preparing to complete a final regulation defining which banks, hedge funds, energy firms and other companies will be swap dealers and will face the highest capital and collateral requirements to reduce risk in the swaps market. The law is “very clear” and applies to financial and non- financial companies that are engaging in dealing activity, Gensler told reporters after a speech at George Washington University.

“In the past some entities were left out of regulation just because of what they called themselves,” Gensler said. “I think it would be a mistake to end up with this era’s Enron loophole, and something that might be a loophole for others.”

In 2000, certain certain electronic markets were excluded from commission oversight under the so-called Enron loophole, named for the energy company that collapsed in late 2001. “I think it would be a mistake to end up with what would be sort of this era’s BP loophole,” Gensler said.

Shell Energy North America LP and Vitol Inc. are among energy companies that have told the CFTC they use swaps and other derivatives to hedge risks tied to oil, natural gas and other underlying assets.

“To the extent that Vitol ’s active bidding and offering are motivated by its own interest in entering into a transaction in a commodity in which it has an active physical presence, it should not be considered swap dealing,” Miguel Loya, Vitol president, said in a letter to the CFTC in February 2011.

Gensler said the CFTC is working to limit the affect of the rule on end-users of derivatives and has the “tools to clarify” the regulation. The agency may vote on the swap dealer rule on March 20, a person briefed on the matter said this week.

To contact the reporter on this story: Silla Brush in Washington at

To contact the editor responsible for this story: Maura Reynolds at

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