UPDATE 2-US Senate oil speculator bill drops higher margins

(adds comment from airline group)

By Tom Doggett

WASHINGTON, July 16 (Reuters) - In a big win for the U.S. futures industry, new Senate legislation unveiled on Wednesday would not impose higher margins on oil traders but would still aim to rein in excessive speculation in energy markets.

Futures markets participants had feared that earlier legislation introduced by Sen. Byron Dorgan to boost significantly the amount of money, or margin, that speculators would have to put up to trade oil futures would make it into a anti-speculation bill from Senate Democratic leaders.

Some lawmakers blame the sharp run-up in crude oil and gasoline prices on rampant speculation, while others say the increase simply reflects tight supply and strong demand.

Dorgan, a Democrat from North Dakota, had sought to hike margins for speculators to 25 percent of the value of the oil traded from the current margin of 5 percent to 7 percent. But when Senate Majority Leader Harry Reid of Nevada unveiled the bill on Wednesday, he left out the higher margins, a move that wins the support of more lawmakers.

Higher margins would have made it more expensive to trade in U.S. futures markets such as the New York Mercantile Exchange. Futures industry officials had warned that if margins were significantly raised, the United States would lose business to overseas exchanges or less-regulated U.S. markets.

Still, Reid's bill would require the Commodity Futures Trading Commission to distinguish between true hedgers, like airlines, that buy and sell oil futures to offset the risk of high fuel prices, and speculators who bet on the price of oil and never intend to take physical delivery of the crude.

"This bill will address the rising cost of gasoline in the short term, prevent Wall Street traders from gaming the oil markets and ensure that American consumers are paying a fair price at the pump," Reid said on the Senate floor.