Feinstein Letter of Support – Amendment 3939 London Loophole

United States Senate
Washington, DC 20510

May 14, 2010

Re: Feinstein Amendment #3939 to Restoring Financial Stability Act of 2010 to improve CFTC enforcement authority with respect to Foreign Boards of Trade

Dear Senator:

The over 250 consumer, employee, investor, community and civil rights groups who are members of Americans for Financial Reform (AFR) write to express strong support for Amendment No. 3939 to S. 3217 offered by Senator Feinstein.  The amendment will give regulators the tools to rein in U.S. traders who use electronic exchanges based overseas to artificially drive up the prices of energy and other U.S. commodities.

America has experienced the worst economic recession since the Great Depression due in large part to the proliferation of unregulated and opaque over-the-counter (OTC) derivatives which Warren Buffet famously called “weapons of financial mass destruction.”  In addition to the systemic risk and hidden leverage piled on the U.S. economy by unregulated OTC derivatives, these same instruments have caused hardship to consumers and businesses by dramatically increasing the volatility of fuel and other commodities.

Since the deregulation of derivatives in 2000, institutional investors have become active traders, turning commodities into just another asset class. The inflow of massive speculative investment has caused severe market imbalance and upset the natural relationship between supply and demand. As a result, legitimate customers such as trucking companies, airlines, and consumers have been forced to purchase oil at unnecessarily higher prices.  As Time magazine said on May 3, “If speculators — including investment banks and hedge funds — add fuel to the momentum as they did two years ago, when light crude topped out at $147, oil might trade at even higher highs around the time of the next U.S. presidential election.

With Senate Bill 3217, the Senate is now taking the necessary steps to mandate that clear-able OTC derivatives must clear through a central counterparty and that trade-able OTC derivatives must be moved onto an exchange for trading.  We strongly support your efforts as the most important thing America can do to prevent the next financial meltdown and stop damaging trading practices.  We also strongly support the adoption of Amendment 3939 offered by Senator Feinstein to allow the CFTC to require Foreign Boards of Trade to register with CFTC, which would give CFTC the enforcement authority it needs.

Please contact Lisa Lindsley, Director, Capital Strategies, AFSCME, for more information: 202.429.1275 or llindsley@afscme.org.


Americans for Financial Reform

Click here to download a copy of this letter (doc).