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energy sector, and turned the Transnor decision from an obscure footnote in the history of oil trading
into a critical launching pad for a wide-ranging redrawing of the rules of commodities markets.
On Sept. 25, 1990, a policy confirming that the Brent contracts were forward contracts - and therefore,
outside the scope of CFTC regulation - was put to a vote among CFTC commissioners.
It passed 3 to 1.
Ms. Gramm faced one vocal critic in her push to keep the Brent market unregulated: Fowler West, the
lone 'no' vote.
"It was the way we were doing it, the speed with which we were doing it," Mr. West recalled in an
interview. "It was that kind of an attitude that did open the door up for a lot of problems."
Ms. Gramm defends the CFTC's actions, and says the commission faced pressure from Congress to act.
Senior CFTC staff, as well as a majority of commissioners, agreed with the interpretation concerning
forward contracts, she noted.
"I don't think it was done too quickly," Ms. Gramm, who now chairs the Regulatory Studies Program at
George Mason University's Mercatus Center, told The Globe and Mail in an interview.
Mr. West, meanwhile, wasn't merely outvoted. He was muzzled.
Although he wrote an official dissent after the vote, Ms. Gramm and the other commissioners blocked
his views from being published in the CFTC's official record.
Furious, Mr. West retaliated by voicing his concern about the CFTC's moves to the New York State
Bar Association. The regulator, he told the lawyers' group, "may soon be paying a price for its
politically expedient statutory interpretation. I doubt that its new forward contract exemption can be
restricted to large international oil and trading firms represented by influential lawyers."
He concluded with an ominous warning: "The public, down the road, will suffer from this fit of
deregulation, no matter how well intentioned."
Mr. West's remarks were published in a law journal, and the efforts by the CFTC to quiet him stirred a
furor in D.C. legal circles.
Two years later, Congress amended the Commodity Exchange Act to require the CFTC to publish
dissenting opinions.
Into the promised land of deregulation
Much as Mr. West predicted, the Transnor case proved to be a watershed event. The CFTC's embrace
of a narrow definition of a futures contract built on the regulator's earlier promise that it would not
police swap transactions.
Together, these moves opened up a new frontier of commodity trading, enabling financial speculators
to buy and sell complex derivatives away from the prying eyes of regulators and exchanges.
For these dealers in the late 1980s and 1990s, the shrinking CFTC rulebook created a "virtually
regulation-free promised land," Philip McBride Johnson, who was CFTC chairman from 1981 to 1983,
later told a congressional committee.
The vast majority of this trading boom occurred in the oil and energy markets, both of which are
sufficiently large and liquid to accommodate legions of traders.
It wasn't long before dealers began gravitating toward the smaller agricultural commodities markets as
well.