Quote from rubibond007:
I have a Question.
the OTC market is too big (the biggest in the world), Do they really need to deal with the US when they can do their OTC Busisness in london or dubai or hong kong without a problem?...
thanks in advance.
You hit the nail on the head. If the US tries to increase regulation, the liquidity will simply shift to London, Singapore, Calgary, etc. There is plenty of liquidity in look-a-likes (essentially identical to NYMEX contracts except they're bilateral and cash settled) in the OTC market, enough that most of the major players in energy (the ones that are supposedly manipulating the energy markets) don't need to trade NYMEX contracts.
Not to mention, much of the activity in energy trading is in contracts that aren't listed on NYMEX or ICE i.e. basis swaps, structured products, exotic options, etc...95% of my book consists of refined product swaps and options that reference Platts, Argus and OPIS and aren't available on NYMEX or ICE, although many of them can be cleared via Clearport.
Having said that, most in Washington, as well as the various trade and consumer groups, that are advocating increased regulation, are too ignorant to realize that the energy markets (save natural gas, to an extent) are global markets and that it would be pretty easy for the major banks, funds and energy companies to simply shift their trading to offices and entities that aren't subject to US regulations which, in turn, could reduce transparency and liquidity in the US and could, arguably, lead to the potential for more "manipulation" than exists in the current environment.
Unfortunately (or fortunately for some of us, I suppose) they're using Amaranth as their primary case study so they aren't looking at the big picture, rather their efforts are focused on nat gas look-a-likes traded on ICE.
If these groups had any idea how many trades are done via IM or over the phone they'd quickly realize that they're fighting an uphill battle.
