Banks ask FERC to exclude hedging from holding limit


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Two large U.S. banks that want to trade U.S. wholesale power asked the U.S. Federal Energy Regulatory Commission (FERC) recently to exclude some hedging activities from an agency utility stockholding limit.

In June, FERC raised the utility-ownership limit on Bank of America Corp. and Swiss-based UBS AG to 5 percent from 1 percent as a condition for approving the companies to trade wholesale power.

In a joint filing Tuesday, the two banks asked FERC to exempt from the 5 percent calculation utility stocks and bonds held for hedging purposes, as long as the holdings are consistent with existing bank regulatory rules.

"The hedge designed to be most consistent with a bank's safety and soundness ... could involve more than 5 percent of an issuer's voting securities," the banks said.

Bank of America, the nation's third-largest bank, and UBS had complained that the original 1 percent limits would make it nearly impossible for them to enter U.S. power trading.

UBS last year bought bankrupt Enron Corp.'s online energy trading platform.

Amid a wave of slumping stock prices and credit downgrades at many U.S. merchant power trading firms, some large banks are seeking to fill a void left by merchants' retreat from speculative trading.

Trading desks operated by banks have access to more capital, and can post the large amounts of collateral demanded by power trading counterparties.

Investment banks Morgan Stanley and Goldman Sachs are already active in the U.S. wholesale electricity trading market. FERC has also approved German-based Deutsche Bank's entry to the market.

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