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Amaranth's flameout could turn up the heat on the

InterContinental Exchange

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Critics are saying a regulatory loophole at the ICE, an Altanta-based electronic exchange, may have played a role in last week's $4 billion loss at Amaranth. With legislators and big Wall Street firms feeling burned by the latest hedge fund blowup, some observers believe the ICE could face increased oversight -- a development that potentially could slow the company's growth.

It was the relative lack of oversight at the ICE that let Amaranth make the high-risk natural gas trades that ultimately turned sour, critics charge. Because of its heritage as an overseas exchange, the ICE is exempt from reporting trading data for over-the-counter trades to regulators at the Commodities Futures Trading Commission. Critics say the loophole permitted Amaranth to aggressively add to its high-risk bet that natural gas prices would rise at a future date.

"It will come out that the ICE was a market that was heavily used," says Michael Greenberger, a professor at the University of Maryland Law School and former director of trading and markets for the CFTC during the Clinton administration. "The ICE loophole allows for off-market trades."

An ICE spokeswoman says it's too soon for anyone to draw any conclusions about the Amaranth blowup.

"We think until there is more information, it's not fair for anyone to guess what Amaranth may have been doing,'' says Kelly Loeffler, an ICE spokeswoman. "We believe we are only a small piece of the OTC market and certainly the most transparent piece.''

But Greenberger says energy traders increasingly are turning to the ICE as an alternative to the New York Mercantile Exchange. The Nymex is required to provide trading data to the CFTC.

Greenberger says if most of Amaranth's trades had gone through the Nymex, there's a good chance the CFTC might have asked questions about its activity in the natural gas market.

The so-called ICE loophole was the focus of a Senate hearing this summer. The Senate's Permanent Subcommittee on Investigations, looking into allegations of price manipulation in the oil and gas trading markets, concluded that the CFTC needed to extend its oversight to over-the-counter trades" in order to detect and prevent price manipulation and excessive speculation." CFTC regulation of over-the-counter trades would extend to ICE, observers say.

To date, however, the CFTC hasn't taken any action in response to the congressional report. The CFTC has declined to comment on the Amaranth debacle and on whether it is investigating the hedge fund's trades.

But Greenberger says the big losses at Amaranth may put pressure on the CFTC to take action. The pressure could come from Capitol Hill and some of the big institutional investors who lost money in the Amaranth blowup.

Some of the big Wall Street firms with investments in Amaranth are

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Goldman Sachs

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. Other investors include Mercantile Capital and the San Diego County Employees Retirement Association and hedge fund giant Man Group.

"I think there is a movement afoot to ask the (CFTC) what are they doing," says Greenberger. "They could call up (the ICE) tomorrow and say, 'Send us your data.' "

The regulatory loophole for the ICE exists, in part, because the electronic exchange is regulated by the U.K. Financial Services Authority. Its prime regulator has been in the U.K. ever since ICE purchased the British-based International Petroleum Exchange in 2001.

The ICE, which went public last November, has been fast adding market share, in part because of the regulatory loophole. Shares of the ICE, which is planning to acquire the New York Board of Trade, have nearly doubled since their debut. The stock most recently traded around $75.25.