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From Securities Regulation Daily, September 24, 2013

Sen. Stabenow asks CFTC to look into possible manipulation in renewable fuels credits market

By Lene Powell, J.D.

Sen. Debbie Stabenow (D-Mich.), Chairwoman of the Senate Agriculture Committee, today asked the CFTC to review recent allegations about possible manipulation of the markets for Renewable Identification Numbers (RINs), the tracking mechanism to ensure that petroleum blenders and refiners meet federal requirements for the use of renewable biofuels.

“I would like the CFTC to help determine whether factors other than supply and demand have been causing extraordinary volatility in the price of RINs and to what extent fraud and manipulation have been affecting the price of RINs,” Stabenow wrote to CFTC Chairman Gary Gensler, adding that she is concerned that a lack of transparency has made markets more susceptible to manipulation.

Renewable Identification Numbers (RINS). RINs are part of the federal Renewable Fuel Standard (RFS), which requires the use of renewable biofuels in transportation fuel. RFS is a market-based compliance system in which obligated parties (refiners and terminal operators) must submit credits to cover their obligations. Most RINs are bought and sold through private contracts registered with the EMTS, but there are also spot markets for RINs.

According to a July 2013 analysis by the Congressional Research Service, conventional ethanol RIN prices have risen dramatically since the beginning of 2013, from roughly $0.07 per gallon in January to over $1.00 per gallon in July. In the last several years, the EPA issued Notices of Violations (NOVs) to three companies that the agency alleges fraudulently generated a combined 140 million biodiesel RINs. The EPA is looking at establishing a system in which RINs can be certified by third parties registered with the EPA, the analysis said.

Request by Sen. Stabenow. The senator asked the CFTC to use its expertise and authority to help preserve RIN market integrity, particularly with respect to the price discovery function of these markets and the ability of end users to hedge their risk and comply with their RFS requirements. Specifically, she asked the CFTC to assist in determining if factors other than supply and demand have been causing “extraordinary” volatility in the price of RINs, and whether fraud and manipulation have had an effect on RIN prices.

The senator asked the CFTC to coordinate with the EPA. She also instructed the agency to inform the Senate Agriculture Committee if there are any limits to its authority, expertise, or resources that could inhibit it from monitoring these markets.

LegislativeActivity: Derivatives

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