Thank you, Bo, for that kind introduction. It is an honor to address the National Energy Marketers Association. I know that you are discussing many important issues this week and I also know how hard many of you have been working on things like standards of conduct and best practices in disclosure and valuation. I do believe that to be an appropriate use of your time and resources. Since some of you may not be familiar with the Commodity Futures Trading Commission, I’d like to use my time here this morning to tell you generally how we do business. Specifically, I want to describe my market oversight philosophy and to bring you up to speed on where the Commission is in its efforts to address energy market issues, including our enforcement cases.

The CFTC oversees the futures trading industry, including exchanges and trading facilities, clearinghouses, and market intermediaries. Roughly 85% of the volume in futures trading is made up of contracts on financial products, with about 8% in agricultural contracts, and the remainder in metals and energy.

When I came to the Commission five years ago, I saw new trading platforms and trading technologies emerging rapidly and I noted that electronic trading was growing at a tremendous pace. These changes were beginning to bring new participants to the marketplace, increasing efficiency and liquidity, enhancing customer service, lowering many barriers to effective cross-border activity, and generally improving the availability and usefulness of risk management tools in more and more sectors of the economy. Yet it also quickly became apparent to me that certain aspects of the oversight structure were not facilitating this process, and were even stifling innovation and progress.

Fortunately, help was soon to be on the way in the form of the Commodity Futures Modernization Act, a much-needed law that I have consistently supported. The CFMA provided flexibility and achieved three primary objectives: rule modernization for market participants and exchanges, legal certainty for over-the-counter markets, and legalization of futures based on single stocks and narrow stock indices.

I have a relatively straightforward oversight philosophy that can be stated in two principles: For the legitimate efforts of market participants who through innovation and fair competition bring to the marketplace greater liquidity, more useful risk management tools, better use of technology, more efficient pricing, and enhanced customer service, I believe in providing the most flexible and responsive oversight structure possible, with simplified rules and streamlined processes. For those who attempt fraud or manipulation, however, I believe in prompt and aggressive exercise of our enforcement authority under the Commodity Exchange Act. In other words, the proper deterrent to wrongdoing, in my opinion, should not be additional prescriptive or burdensome regulations that adversely affect legitimate activity but, rather, strong enforcement actions against those who attempt to operate outside the established rules.

I do not subscribe to the idea of imposing new restrictions just to appear to be acting. The temptation to resort to prescriptive regulations that take a static view of markets and technology has traditionally been hard to resist for some regulators. I believe the key to success for an oversight agency such as ours that is witnessing great change in the marketplace is to pursue the same innovativeness and creativity that successful market participants rely upon in conducting their businesses. Fortunately, the CFMA has afforded the Commission the opportunity to do so through its targeted flexibility. The Act instituted principles-based rules that allow oversight to be tailored to the sophistication of market participants, the nature of the contracts being traded, and the manner in which they are traded. This framework reflects a common sense approach to market oversight.

I believe that the oversight approach called for by the CFMA empowers the Commission to fulfill its important public policy mission without stifling the innovation driven by new technologies or the evolving needs of market participants. For example, very quickly following passage of the CFMA, the Commission was able to implement a variety of rule modernizations that affected exchanges and other trading platforms. Congress also directed the CFTC to review its rules affecting market intermediaries, from futures commission merchants to commodity pool operators and trading advisors. After soliciting input from market participants through hearings and roundtables, we recently published a number of modernization proposals for public comment. Some of these initiatives address issues that have challenged us for years. Some involve rule changes that affect not only our registrants but also mutual funds, insurance companies, and banks. We are committed to this effort and encourage all who are interested to comment on our proposals.

Rules, however, are not the only thing we are trying to modernize. We are also looking at how we approach our oversight responsibilities with an eye toward increasing our effectiveness and making best use of taxpayer resources. For example, we recently commenced a new risk-based auditing program. This approach has been very successful for banking regulators and is now well accepted by the financial institutions themselves. In risk-based audits, CFTC staff will focus their resources on areas that could pose the greatest danger of giving rise to problems that might threaten the safety of customer funds or the financial integrity of a registered intermediary.

Notwithstanding some of the challenges that we have encountered, I continue to believe that one-size-fits-all regulations and prohibitions that ignore unique risk management needs are effective neither in maximizing the efficiency of our various markets nor in minimizing the risks to participants. Rather, I believe that a regulatory environment in which oversight boundaries are clearly defined and focused on real risks and which permits valuable innovations in risk management while maintaining and enhancing workable safeguards is not only the best protection against systemic problems, but also a good provider of legal and regulatory certainty for business decision-makers.

Our efforts to modernize CFTC rules to allow greater flexibility and innovation for legitimate business endeavors will continue to be accompanied by our determination to use strong enforcement actions to deter unethical and illegal activity. The risk management markets are critically important to the U.S. economy and we have been extremely active in addressing concerns. I believe that the increasingly more widespread use of derivatives to manage risks not only benefits the direct users of derivatives but also contributes to greater flexibility, resiliency and efficiency in the economy. My recognition of just how important these risk management markets really are only strengthens my determination to protect them from attempts at fraud, abuse, or manipulation. Accordingly, it has been my consistent policy to bring the Commission’s enforcement capabilities fully to bear on anyone who attempts to compromise the integrity, efficiency, or reliability of these markets.

At the end of last year, the Commission imposed a $5 million civil monetary penalty against Dynegy and West Coast Power in connection with false reporting and attempted manipulation. Last month, we filed a three-count complaint against Enron in federal court in Houston, including charges that Enron manipulated Henry Hub natural gas prices and operated an illegal futures exchange. Also last month, El Paso Merchant Energy entered into a consent order that penalizes it $20 million for the reporting of false information to certain energy price reporting indices. The penalty imposed upon El Paso reflects, in part, the Commission’s recognition of El Paso’s cooperation during the CFTC investigation of this particular conduct and its agreement to continue cooperating in related matters. In addition to these cases, our Enforcement Division is actively engaged in other energy sector investigations, which may result in further charges being filed.

During these investigations, we have cooperated with other regulators and enforcement authorities and will continue to do so. The cases are complex and require substantial time and resources to develop, but it is my goal to identify the wrongdoers, and, just as importantly, to exonerate those not involved, as expeditiously as possible so that these markets can work toward restoring the confidence of market participants and the public. I know that many within the energy sector have been, and are, hard at work in this effort and should be commended for the things that have been implemented or proposed thus far, including various initiatives on best practices, standards of ethical conduct, and, where appropriate, greater transparency.

Investigations and enforcement cases are not the only ways in which we are cooperating with other oversight agencies. Earlier this year, we jointly hosted with the Federal Energy Regulatory Commission a conference to discuss possible solutions to credit risk problems in the energy sector. I greatly appreciate the participation of market participants in what turned out to be a very informative program. I was made even more keenly aware of the challenges facing those who very much need the risk management tools offered by OTC energy derivatives. I believe that the CFMA opened the door to one potential solution in this area in that the clearing of OTC derivatives by the futures market clearinghouses can now be permitted. In fact, the Commission has been working since early last year with the New York Mercantile Exchange on initial efforts in this regard because with our experience we recognize that centralized clearing can do much to address counterparty credit concerns, which appear to be a key concern among potential users of the OTC energy markets.

As a follow-up to some of the things we heard at that conference, FERC Chairman Pat Wood and I wrote jointly to Congress to express our support for previously proposed amendments to certain portions of the bankruptcy code. Such changes may also help to alleviate credit risk concerns in certain energy markets by ensuring the enforceability of acceleration and termination provisions, netting clauses, and other contractual safeguards in the event of one counterparty’s insolvency.

A key reason that I have expressed my support for those particular amendments to the bankruptcy code -- most recently with Chairman Wood but also previously as a member of the President’s Working Group on Financial Markets -- is that they would provide market participants with a greater degree of certainty that the key protections which they carefully negotiate into their transaction agreements will be honored and enforceable should a problem ever arise. I believe that certainty for counterparties is critically important to the smooth and efficient operation of markets. If laws, regulations, or even enforcement policies are unclear, then market participants must factor that uncertainty into their decisions and this, in turn, can often result in missed opportunities, inefficient results, or misallocated resources.

As I mentioned earlier, certainty is a concept that Congress directly addressed through the Commodity Futures Modernization Act. A good example of how they did so is the section which provides assurance to market participants that their transactions cannot be voided or otherwise called into question -- and that they themselves cannot be deemed to have violated the Commodity Exchange Act or the Commission’s rules -- solely because a particular trading platform has failures to comply with all requirements. This means, for instance, that market participants who may have executed transactions through EnronOnline need not fear that those transactions will be unwound just because we brought charges against Enron.

Better certainty can also be provided to market participants by the oversight agencies. If doubts exist as to whether certain activities are appropriate, then I believe that oversight agencies, including our own, should do everything within their power to provide those answers rather than leaving potential market users in the dark. The bottom line is that it is my goal to act quickly and clearly on all fronts so that these markets can get back on their feet.

Let me conclude by assuring you that the Commission is attentive to all of the various concerns that market participants and others have expressed about energy and energy derivatives markets. I recently asked one of my fellow commissioners, Commissioner Sharon Brown-Hruska -- who will be speaking to you later today and who brings the skills of a PhD economist to the Commission -- to take a leading role in working with me to evaluate legislative proposals and other issues with respect to the energy markets. I will work actively with Commissioner Brown-Hruska as we continue to monitor these important markets closely.

Thank you for the invitation to be here this morning and for allowing me to update you on our efforts at the CFTC.