www.fueloilnews.com | FUEL OIL NEWS | JUNE 2014 21
implementation has been reasonably
good," said NEFI President and CEO
Michael Trunzo. "We've had a lot of
input and the CFTC has been willing to
listen. They do understand the impor-
tance of the constituents that CMOC
represents, and while not every rule has
been exactly as we would like it we think
the market has taken a step in the right
direction for transparency and we have a
much better sense of who the players are
in the marketplace."
Cota sees the clearing function as
the most important element that has
been put in place to date. "Everyone
made a big deal out of transparency so
they created swap execution facilities
which report what the deals are and,
more importantly, guarantee the other
side of the bet. If I, as Sean Cota Oil,
wanted to buy heating oil contracts on
the NYMEX exchange and the seller
of those contracts was Fly-By-Night
Oil Company, the exchange does two
things. First, it reports the settlement
price that we came up with through the
exchange and it also guarantees that
if Fly-By-Night Oil flies by night and
disappears the exchange will deliver
on that contract [for a margin fee]. So
you're going to take a look at the credit
risk of the individual, the market and
price it accordingly. That's what the
bank should be doing. So now they
have a way of making money doing
what they should be doing instead of
betting against their accounts. And
because it's all going to be visible, if
there's manipulation in these markets
and it's going to be visible you might as
well get out of it now before it comes to
the light of day."
This already seems to be having an
impact on the market dynamics that
developed post 2000.
"Morgan Stanley was traditionally the
biggest holder of oil in the world in a vari-
ety of businesses that they either owned
or had a controlling interest in such as
TransMontaigne," Cota said. "They had
Morgan Stanley Oil Company which they
did a lot of their hedging with, there
was Morgan Stanley Shipping and then
their commodity trading unit. They put
a lot of those things on the block. An
exchange provides transparency so that
you can see what's going on. If people
know who is making a bad bet, they will
gang up against him—because it's a ruth-
less market—and take him out. If it's in
an opaque market you can't tell, don't
notice it and you can't find out if there's a
rational or irrational reason."
So What NoW?
As noted, there have been some signif-
icant regulatory successes and apparently
those are already bearing fruit. However,
Fuels
