CFTC (And FERC) Compliance Managers Take Note – CFTC Schedules Vote On Final Interpretation Of Disruptive Trading Practices

by Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact

At its open meeting on May 16, 2013, the Commodity Futures Trading Commission will vote on the final interpretative rule for disruptive trading practices under Section 747 of the Dodd-Frank Act. That order should be of interest to CFTC compliance managers. But FERC (Federal Energy Regulatory Commission) compliance managers should also take note because FERC would surely find trading practices—disruptive under the Dodd-Frank Act—also disruptive (and manipulative) under the anti-manipulation provisions of the Natural Gas Act and the Federal Power Act.

Section 747 of the Dodd-Frank Act makes it unlawful under the Commodity Exchange Act (Section 4c(a)(5)) to engage in any trading, practice or conduct on or subject to the rules of a registered entity that (i) violates bids or offers, (ii) demonstrates intentional disregard for the orderly execution of transactions during the closing period or (iii) would be considered “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution.)

On March 18, 2011, the CFTC took comments on its proposed interpretation of Section 747. In that proposal, the CFTC said a market participant would violate the “bids or offers provision” by buying a contract at a price that is higher than the lowest available offer price and/or selling a contract at a price that is lower than the highest available bid price.  On the “orderly execution” provision, the CFTC said it would look for reckless conduct during the closing period (the period in the contract or trade when the daily settlement price is determined under the rules of that trading facility) and apply current commodities and securities precedent in reviewing the appropriateness of that conduct.  On the spoofing provision, the CFTC said that spoofing also includes, but is not limited to, “(i) submitting or cancelling bids or offers to overload the quotation system of a registered entity, (ii) submitting or cancelling bids or offers to delay another person’s execution or (iii) submitting or cancelling multiple bids to create an appearance of false market depth.”

At its upcoming May 16 meeting, the CFTC will vote on the final interpretive rule. The CFTC’s decision should be of interest to CFTC compliance managers but also FERC compliance managers. While FERC does not specifically prohibit disruptive practices, its regulations do make it unlawful for any entity to “use or employ any device, scheme or artifice to defraud” or to “engage in any act, practice or course of business that operates as a fraud or deceit upon any entity” in FERC wholesale gas and electric markets. 18 C.F.R § 1c.2.  To the extent that a disruptive practice results in wholesale electric and natural gas prices that do not reflect the forces of supply and demand, FERC would find the disruptive practice manipulative.  Energy Transfer Partners. 120 FERC ¶ 61,086 at P 71 (2007).(“Market manipulation is harmful and inconsistent with free markets.  One of FERC’s most important responsibilities is to exercise regulatory oversight to assure that wholesale energy markets are free, open and fair, where supply and demand may freely meet at prices uninfluenced by manipulation.”) (emphasis added)

In a future Dodd-Frank blog post, we will be summarizing the final interpretative rule regarding disruptive practices.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Dodd-Frank and the Jobs Act | Attorney Advertising

Written by:

Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact
more
less

Stinson Leonard Street - Dodd-Frank and the Jobs Act on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.