Houston, TX—FIA President and CEO Walt Lukken today made the following opening remarks at the FIA Commodities Symposium in Houston, Texas. The following remarks are prepared for delivery:
Good afternoon everyone and welcome to FIA’s Commodities Symposium.
Commodity markets underpin and drive our entire global economy—whether it’s the food that feeds our families, the energy that fuels our cars or the steel that frames our cities. Commodities are literally the building blocks for society.
The commodities markets have also been foundational in the development of the modern futures and cleared derivatives industry. Commodity markets were the first to use these risk management tools to hedge prices and unlock investment capital—dating back 150 years for agricultural products and 40 years for energy. Today, modern commodity firms use a sophisticated mixture of listed and over-the-counter derivatives to manage price risk around the globe.
Listed derivatives serve another important societal purpose, and that’s price discovery. Every day, businesses large and small rely on prices discovered on our markets to make decisions. Prices discovered on public exchanges provide a fair and transparent benchmark for the transaction of basic goods and services throughout the global economy. Whether you are a global shipping company in Shanghai or a local gas station in West Lafayette, Indiana, both are on a level playing field and have the same information to make decisions based on prices discovered on our markets.
These prices allow entrepreneurs–big and small–to put their capital where it is most needed in society. That was clearly the case a decade ago when oil reached $140 a barrel, sending powerful signals to the capital markets to invest in new energy production as well as alternatives such as renewables, battery technology and electric vehicles.
And over the last decade, we have seen the pay-off with the US transforming itself from the largest importer of crude oil to the world’s largest energy producer. It shows you the power of these markets to change behavior and incentivize investment capital.
However, none of these benefits of derivatives are possible without proper regulation. FIA is a strong advocate for smart regulation that ensures markets abide by high global regulatory standards. Smartly regulated markets should not have the least or most amount of regulations, but the right amount tailored to the risks of these products. This is often a difficult “sweet-spot” to find by government officials as we have seen over time.
This is where FIA can help. Last year, FIA instituted its U.S. Commodities Committee as a forum for companies that are active in commodity markets to gather and discuss the regulatory and operational issues of the day.
The committee includes all categories of FIA members – commercial end users, exchanges, brokers, law firms and consultants. I’m pleased to see all these members represented here today.
FIA has been a leading voice for the industry on the CFTC’s efforts, as part of the Dodd-Frank Act, to implement a federal position limits regime for energy, agriculture and metals futures and derivatives contracts.
As you all know, a new federal position limit regime will have a significant impact on commodity derivatives markets and your companies, which rely on these markets to manage economic risks.
The U.S. Commodities Committee is primed to continue FIA’s advocacy on position limits, as we await a new proposal from the CFTC.
The Committee also plans to examine the impact of other regulatory initiatives on commodities markets. These include the CFTC’s enforcement of so-called “insider trading” rules, prudential capital rules, and the CFTC’s proposal to reform swap markets and reporting. You will see these issues, among others, discussed over the next two days.
We are fortunate that Commissioner Dan Berkovitz, sponsor of the CFTC’s Energy and Environmental Markets Advisory Committee, will address the CFTC’s regulatory initiatives and priorities for commodities markets tomorrow morning.
We will explore the regulatory, enforcement, documentation, and technology issues that impact spot and derivatives markets in energy and agriculture.
The panel sessions are intended to offer practical guidance on how you and your firms can design and implement policies that help to minimize the risk of regulatory investigations and penalties.
In closing, I want to thank you for joining us today in Houston. In particular, I want to thank our sponsors and panelists for helping make this possible. We couldn’t do it without you.
And now it’s my pleasure to bring up Mike Sorrell, FIA’s associate general counsel and commodities lead in the United States for some brief comments and housekeeping.