Amaranth distorted US natgas prices in 2006-US panel

U.S. regulators were powerless to stop "excessive speculation" by Amaranth Advisors LLC because the giant hedge fund exploited an unregulated electronic exchange to "dominate" and "distort" natural gas markets in 2006, a U.S. Senate panel said in a report issued on Sunday.

Before it folded in September after sustaining $6.4 billion in losses on bad bets on natural gas contracts, Greenwich, Connecticut-based Amaranth commanded a massive trading book that at one point included about 40 percent of natural gas futures contracts for delivery in the winter months of 2006-07, the Senate Permanent Subcommittee on Investigations said in a report that details its nine-month probe.

"Amaranth accumulated such large positions and traded such large volumes of natural gas futures that it distorted market prices, widened price spreads and increased price volatility," the panel wrote in its 130-page report.

Investigators drew their conclusions from over 2 million trading records they subpoenaed from the New York Mercantile Exchange (NYM.N: Quote, Profile, Research) and IntercontinentalExchange Inc. (ICE.N: Quote, Profile, Research), known to traders as the ICE.

The report, to be discussed at a subcommittee hearing on Monday, gives new ammunition to panel chairman Carl Levin, the Michigan Democrat who wants to give U.S. regulators at the Commodity Futures Trading Commission (CFTC) authority over electronic exchanges like the ICE, which is currently exempt from CFTC oversight.

Levin said Congress should close the "Enron loophole" inserted in the Commodity Futures Modernization Act of 2000 at the behest of lobbying efforts by now-defunct energy trader Enron Corp., which exempts electronic exchanges like the ICE from CFTC oversight.

"We need to put the cop back on the beat in all U.S. energy markets with stronger tools to stop price manipulation, excessive speculation and trading abuses," Levin said.

Amaranth's representatives said the fund did not dominate or distort natural gas prices, and pointed to a finding at the end of the report by Republican staff that "at least at times, Amaranth was responding to the market, rather than driving it."

"Amaranth did not manipulate the market and nothing in the (report) concludes otherwise," said Dan Webb, chairman of Winston and Strawn LLP and counsel to Amaranth.
Source : http://www.reuters.com