A Pitfall Called the Enron Loophole

As winter approaches, the issues raised in the Oct. 21 front- page article "Energy Traders Avoid Scrutiny" become timelier.

The exempt-commercial-markets provision in the Commodity Futures Modernization Act -- also called the "Enron loophole" -- has turned out to be the Achilles' heel of the law. It was inserted at the eleventh hour at the behest of Enron's attorneys. There was never a hearing or any open discussion of this provision. The good thing it did was increase competition; for example, it helped foster the incredible growth of the Intercontinental Exchange. But the provision has resulted in some significant unintended consequences that need to be addressed now.

It is very difficult for the Commodity Futures Trading Commission to achieve its mandate of guarding against energy-market manipulation when there are look-alike energy markets (such as the Intercontinental Exchange) operating "in the dark" and not subject to the rules that apply to other risk-management markets. The good government approach to this is not to wait for an economic calamity to occur. The collapse of the hedge fund Amaranth Advisors last year showed us what can happen. So the question should really not be "if" something should be done but how and when. Closing the Enron loophole is something that should be done as soon as possible -- preferably before winter.

BART CHILTON

Commissioner

U.S. Commodity Futures

Trading Commission

Washington