Improving Energy Market Regulation: Domestic and International Issues

Council on Foreign Relations / by Daniel P. Ahn (CGS/IIGG Working Paper)

[Michael Levi] …The simplest instance in the traditional energy world involves financial speculation. Too  many people have knee jerk reactions against any type of meaningful regulation of financial trading in energy-related products, believing that more government means less market. But as Daniel Ahn argues in a recent CFR working paper, better regulation and appropriate government intervention can actually enhance the credibility and attractiveness of commodity markets, ultimately enlarging rather than shrinking them…

[Overview] Highs and volatile energy prices have driven the regulation of commodity financial markets to the forefront of the U.S. and G20 policy agendas, including the upcoming 2011 G20 meeting in France. Integrated commodity markets require international policy coordination, but not all policy initiatives are equally desirable. Improving Energy Market Regulation examines a range of policy options at both the domestic and international levels. It recommends that policymakers prioritize areas that are better understood to improve market efficiency, particularly improved physical and financial transparency and centralized clearing, over stricter capital and margin requirements and position limits. Even these simpler initiatives face significant logistical and political challenges, and in many cases the United States should proceed unilaterally even as it seeks international cooperation.


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