{
  "id": "RL31923",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL31923",
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  "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department",
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      "id": 341182,
      "date": "2006-12-11",
      "retrieved": "2016-04-07T18:40:09.956029",
      "title": "Derivatives, Risk Management, and Policy in the Energy Markets",
      "summary": "Risk management is important in the energy industries because of the volatility of oil and natural gas prices. Price volatility can reduce the profit of business strategies and hurt consumers. The use of financial derivatives, both traded and over-the-counter, has developed as a low cost method of hedging price risk. However, the use of derivatives has also been linked to major financial scandals and bankruptcies.\nRisk management strategies can be undertaken without the use of derivatives. Vertical integration of the production process, inventory control, and long-term, fixed price contracts can all compensate for the effects of price volatility. Whether one of these choices, or a derivative strategy, is chosen depends on the cost and flexibility of each alternative. Derivative use has expanded rapidly both in value and volume.\nExchange traded and over-the-counter derivatives have different characteristics with respect to their liquidity, safety, transparency and flexibility. The benefits and costs of using either instrument depend on the circumstances and goals of the firm setting up the strategy. A wide variety of derivative contracts exists, including forwards, futures, options and swaps which can be put together to achieve a wide variety of objectives.\nAlthough exchange traded derivatives are self regulated with oversight by the Commodity Futures Trading Commission, over-the-counter derivatives are largely unregulated. Whether these transactions should be regulated might depend on their effect on commodity price volatility, their effect on the stability and integrity of U.S. capital markets, their ability to reduce the cost of capital, enhancing domestic real investment and the value of more open disclosure and price transparency.\nCongress considered proposed derivative legislation in the 107th Congress. Senator Dianne Feinstein introduced legislation in the Senate, while Representative Peter DeFazio independently introduced a bill in the House. In the 108th Congress, Representative DeFazio again introduced a derivative regulation bill (H.R. 1109) and the 109th Congress considered H.R. 1638 and S. 509. In the time since the collapse of Enron, many specific proposals to reform the derivative markets have appeared. These include tying derivative trading more closely to the underlying business interests of the market traders, establishing a clearinghouse to manage transactions, establishing structured derivative trading companies and enhancing reporting and documentation requirements. Each proposal has its strengths, but each could also reduce the effectiveness of the derivative industry in managing risk.\nThis report will be updated as events warrant.",
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    },
    {
      "source": "University of North Texas Libraries Government Documents Department",
      "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc820136/",
      "id": "RL31923_2003May16",
      "date": "2003-05-16",
      "retrieved": "2016-03-19T13:57:26",
      "title": "Derivatives, Risk Management, and Policy in the Energy Markets",
      "summary": null,
      "type": "CRS Report",
      "typeId": "REPORT",
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  ],
  "topics": [
    "Economic Policy"
  ]
}