Oversight sought after fund failure

Lawmakers seeking tougher oversight of commodity exchanges assert in a report that “excessive speculation” dealt a fatal blow to Amaranth Advisors, which helped drive up heating bills last winter before it lost some $6 billion on its natural gas bets.

The defunct hedge fund at times last year controlled 40% or more of the natural gas contracts traded on the New York Mercantile Exchange, and as much as 75% in one month, according to the report by the Senate’s permanent subcommittee on investigations, which plans to begin a hearing on the issue today.

To avoid trading limits on the New York Mercantile Exchange, Amaranth shifted to the IntercontinentalExchange, an Atlanta-based electronic futures exchange that is free from such constraints, the report found.

“Amaranth was gambling,” Sen. Carl Levin (D-Mich.), the subcommittee’s chairman, said at a briefing Friday. “They paid the price, and that’s no problem as far as I’m concerned. The problem is who they took with them, whose prices were impacted by their gamble.”

Levin has introduced legislation to subject electronic exchanges to federal oversight. Rep. Bart Stupak (D-Mich.) has introduced similar legislation that also includes trades not conducted through exchanges.

Kelly Loeffler, an ICE spokeswoman, warned against too-strict regulations that would “create incentives for traders to shift from transparent venues and into the unregulated voice-brokered markets -- where no reporting or anti-manipulation obligations exist.”

Senate investigators concluded that the company’s trades -- bets on the difference between summer and winter prices -- were so big that they drove up prices for the entire natural gas market.

Geoffrey Aronowa, a lawyer representing Amaranth, said, “If Amaranth really dominated the market as the subcommittee claims, wouldn’t they still be in business?”