Commodity dealers should brace themselves for a blitz of new federal regulation that will place undue burdens on traders while giving the Commodity Futures Trading Commission extraordinary powers it may not be equipped to handle, a former CFTC official said Wednesday.

“The credit default swap markets have taken all the deregulatory air out of over-the-counter trading, literally, and everyone who sits in this room, who is involved in commodities trading, is affected by that,” Gregory Mocek, the CFTC’s former director of enforcement, said at Intelligence Press’ GasMart conference in Chicago.

“The most active groups at the CFTC right now are not the banks but the various interests groups who think that volatile markets and high energy prices are to blame for America’s woes,” Mocek said. “The most powerful lobbyists in Washington are those that are lobbying on behalf of the groups on the left who think the derivatives markets and derivatives in general are a bad word.”

In the wake of the Wall Street meltdown and accompanying recession, and a general feeling that deregulation was a significant cause of the crisis, a wave of regulatory fervor is sweeping through Washington, warned Mocek, now a partner with McDermott Will & Emery.

As a result, commodity traders should expect a regulatory “carpet-bombing” by policymakers in Washington, he said.

The end result will be more OTC business moving to electronic platforms, where deals will have to be cleared, and significant new record-keeping requirements imposed on various trading parties, Mocek said.

He also cautioned that under various proposals being floated on Capitol Hill and in the Obama administration, the CFTC will be asked to take on huge new responsibilities.

“I am totally befuddled how they’re going to come close to keeping up with what’s going to be coming in under the new regulatory regime, as we move forward under new rules,” he told the conference. “It’s going to take a CFTC the size of the Securities and Exchange Commission. The CFTC is about 500 people, the SEC is about 4,000. They’re going to have to grow, and it’s questionable whether they’re going to be given the resources to do that.”

The CFTC’s new duties could also include prosecution, Mocek said, adding that some lawmakers want to give the CFTC power to prosecute independent of the Justice Department, “which I think is a bad thing. It will essentially turn the CFTC into a criminal agency.”

“Unfortunately, the anti-regulation types in Washington have laryngitis because their voices are being drowned out by those who would like to see massive change in the OTC markets,” Mocek said. “So as we move forward, maybe it’s time for us to change the definition of derivative to ‘business protection contracts’ because derivatives are not exactly a gifted term within the beltway of Washington, DC.”

reprinted with permission from Platts.