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www.fueloilnews.com | FUEL OIL NEWS | JUNE 2014 19 were doing it for financial reasons. When you securitize the market you're doing it for making returns on investment and your investment doesn't need to relate to things like supply and demand and things like that. It only relates to 'the trend is my friend.' If you push enough money into it you can make a lot of money because there are always chumps in the market, and, unfortunately, we were some of the chumps." Something had to be done and there was finally real will to do what was a very difficult political task. The industry had already pushed for and enjoyed several successes to build upon. The "Close the Enron Loophole Act" had been passed as part of the 2008 Farm Bill which represented a narrow fix, because it only addressed the electronic market concerns raised by the Enron natural gas fiasco. It only required transac- tions to be regulated if they were declared by the CFTC to be price discovery contracts. "That was very limited," said Collura, "But we fought very hard just to get that passed. And CFTC had formed the Energy and Environmental Markets Advisory Committee. Those were significant but then everything changed when the market col- lapsed in September 2008." Collura noted that going into the collapse Congress was already debating law to regulate commodities derivatives. That law passed the House in July 2008 with broad bipartisan sup- port, but stalled in the Senate. After the collapse, the full extent of the issues with derivatives was realized and the need to look at far more than just commodities. That led into the debate in 2009 - 2010 over a much broader bill. "It was Jim Collura heading up CMOC that paired up with a group called Americans for Financial Reform that gave us the political power to draft large chunks of Dodd Frank," Cota said. "We made a lot of shrewd decisions leading up to that. Because the markets were all coming unwound at the time there were serious concerns about who was going to be running CFTC and who is going to be making an impact on these markets. The incoming chairman of CFTC was a guy named Gary Gensler who was from Goldman Sachs, and we insisted on meeting with Gary early in the process before he went to any confirma- tion hearing. Our concerns were that here's a guy that helped deregulate, along with Robert Rubin and Larry Summers, large chunks of this market." Cota noted that Gensler had experienced a change in his life and saw the damage that had been done by the deregulation. He realized and learned from the mistakes that had been made and knew the minutia of how these markets worked. "We talked to Gary at some length about whether he had the ability to do it and his interests in pushing this forward," said Cota. "Our interest was having a functional market that serves the commodity end-users and he was with us and we took a gamble—and some heat at the time—for supporting a guy in the nomination process looked like he was in the pocket of the banks. In reality it turned out to be just the opposite." The legislative vehicle was to be the Dodd–Frank Wall Street Reform and Consumer Protection Act. The portion developed with industry involvement was Title VII, which covered futures and derivatives. The act was signed into law on July 21, 2010. "People to this day do not have an understanding of how big that market is," Cota said. "In comparison, at the point of collapse the federal discretionary bud- get was like $1.2 trillion; the total budget was $3.5 tril- lion; total U.S. GDP was $14 trillion; world GDP was $70 trillion; the world stock market value was $44 trillion; the world bond market was $82 trillion; but the unregulated derivative market at that time was $605 trillion, of which the US was half of that total market. And it was leveraged an average of 35 times. You are talking about more money, just in this area that we were attempting to regulate, than it would take to buy everything in the world." Collura noted that the legislative process for Dodd-Frank involved six long, hard months to develop the Senate bill that was ultimately enacted into law. Virtually every priority was included such as across-the-board transparency in derivatives, mandatory clearing requirements for nonstandard contracts and mandatory exchange clearing requirements for standard contracts. It also required that offshore trading entities want- ing to do business in the United States have to have compa- rable regulations, including position limits. "It basically closed the Enron loophole in its entirety, includ- ing swaps, and closed the offshore trading loophole," said Collura. "It required across-the-board transparency, it strength- ened anti-manipulation and anti-disruptive trading laws and made it easier for the CFTC to prosecute those laws—it was an amazing accomplishment. The problem, though, is that it didn't fill in a lot of the details. For example, it required position limits but did not give CFTC guidance as to what level." Collura noted that various similar ambiguities left opponents in the financial industry with wiggle room. "It was clear to us that Congress, in enacting the Dodd-Frank, meant for manda- tory speculative position limits on all commodities," he said. "Under the previous law passed in 1936, Congress said that was basically at CFTC's option and was only required as appropriate. Dodd-Frank said CFTC shall establish position limits but failed to remove the "as appropriate" language. There is significant leg- islative history about what Congress intended, but unfortunately this left some room for our opponents and Wall Street made the argument that position limits were optional." Rulemaking Battle The rulemaking process has been a very complex task, spread among a range of agencies and with a highly funded financial Fuels At CFTC, Gary Gensler led the charge to reform Wall Street.