Introduction of the Halt Index Trading of Energy Commodities or Hitec Actby Senator Edward J. Markey
Posted on 2013-02-15
in the house of representatives
Friday, February 15, 2013
Mr. MARKEY. Mr. Speaker, I rise today to introduce the Halt Index
Trading of Energy Commodities, or HITEC, Act. I am reintroducing this
bill, which was H.R. 5186 in the previous Congress, with Representative
DeLauro because urgent action is still needed to protect our nation's
oil and refined product commodities markets from artificial and
excessive levels of volatility caused by the trading practices of
certain Wall Street traders. Since 1991, Wall Street investment banks
such as Goldman Sachs have created and marketed a new financial product
known as commodity index funds, which are really energy speculation
funds, gasoline gambles. These energy speculation funds track the
financial performance of one or more commodities. If a speculation fund
has an investment in oil and the value of oil goes up, then the value
of the fund goes up; if the value of oil goes down, the value of the
speculation fund goes down.
These investments have had an adverse effect on the operation of the markets for the commodities that comprise the funds. Hundreds of billions of dollars have been invested in various energy speculation funds, artificially inflating the prices of our commodities. While these energy speculation funds may be driving up prices for many different commodities, they are having an especially pernicious effect on energy commodities. According to testimony submitted to the House Natural Resources Committee, excessive speculation added nearly $1.00 to the per gallon price of gasoline last spring, and energy speculation funds appear to have been largely responsible. Due to the activities of these energy speculation funds, Wall Street investment banks have profited by introducing new and unprecedented levels of volatility and speculation into oil and refined product markets.
Energy speculation funds have changed the very nature of our commodities markets. Traditionally, the commodities market was dominated by companies who actually used the commodities to hedge the business risk associated with oil or refined products prices. Large oil, gasoline, diesel or jet fuel consumers such as airlines, trucking firms, and shipping services were the largest participants in these markets. Indeed, in 1996, companies who actually bought oil on the commodities market so they could use it owned 93% of the oil futures or derivatives in that market. Now, however, these companies only own 37% of the oil futures or derivatives in that market. The bulk of the remaining 63% is owned by speculators who have invested in these energy speculation funds, none of whom will actually use any of the oil or natural gas in which they have invested.
Given how much these energy speculation funds have hurt consumers and business, one might at least think that these energy speculation funds are good investment vehicles. Yet, all evidence is that they have provided mediocre returns in recent years. According to the Wall Street Journal, Standard and Poor's popular GSCI index provided just .08% in annual returns in 2012, far below the returns of the S&P 500. Worse, in 2011, the returns from the GSCI were actually negative. Unsurprisingly, institutional investors like pension funds are moving away from investing in energy speculation funds: Not only do they hurt average Americans and business, but they do not even provide excellent returns for their investors. In truth, the only group of people who seem to be benefiting from the existence of these funds is Wall Street.
Despite only being 22 years old, energy speculation funds have already had a profound impact on our country. They have increased the size of our commodities market. They have increased the volatility of our commodities prices. They have hurt consumers' wallets and small businesses by making them pay more at the pump. They have slowed the growth of our economy by requiring that we devote even more money to energy instead of creating new jobs. They do all these things, and they do not even provide much benefit to their own investors. These energy speculation funds are a danger to our economy, our financial system, and the average American's wallet.
The HITEC Act will restore order to our energy commodity markets and end this experiment. The bill will ban all new investment in energy commodities like light sweet crude oil, natural gas, heating oil, and gasoline by these commodity index funds from the date of enactment. The day the President signs this bill, energy speculation funds will not be allowed to grow any more if they count speculators among their investors. Existing energy speculation funds that continue to count speculators among their investors will then have two years to wind down their investments. As the average length of a ``spot'' commodity contract is one year, this should allow energy speculation funds that continue to house speculators more than enough time to wind down their investments in a fair and orderly fashion.
This bill does not prohibit energy speculation funds from investing in agricultural commodities like wheat or corn, nor does it prohibit those funds from investing in metals such as gold. The bill also does not implicate trading of electricity in any way, shape, or form. Instead, this bill just prohibits energy speculation funds from interfering with our energy commodities, a market that determines the prices for the fuels that power our economy.
This bill will end an unnecessary and harmful source of excessive price volatility that has only served to benefit Wall Street traders and has harmed our economy by pumping up oil, gasoline, and other refined product prices. Enactment of this legislation will address one major source of the pain American consumers have recently been feeling at the pump, and I once again urge all of my colleagues to co-sponsor this critical legislation.