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2011-17549

  • Federal Register, Volume 76 Issue 135 (Thursday, July 14, 2011)[Federal Register Volume 76, Number 135 (Thursday, July 14, 2011)]

    [Rules and Regulations]

    [Pages 41398-41411]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2011-17549]

    [[Page 41398]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 180

    RIN Number 3038-AD27

    Prohibition on the Employment, or Attempted Employment, of

    Manipulative and Deceptive Devices and Prohibition on Price

    Manipulation

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rules.

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    SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

    ``Commission'') is adopting final rules pursuant to section 753 of the

    Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank

    Act''), to implement amended subsections (c)(1) and (c)(3) of section 6

    of the Commodity Exchange Act (``CEA''). These rules broadly prohibit

    fraud and manipulation in connection with any swap, or contract of sale

    of any commodity in interstate commerce, or contract for future

    delivery on or subject to the rules of any registered entity.

    DATES: Effective Date: These final Rules will become effective August

    15, 2011.

    FOR FURTHER INFORMATION CONTACT: David Meister, Director, Division of

    Enforcement, 202-418-5624, or Mark D. Higgins, Counsel, Office of the

    General Counsel, 202-418-5864, mhiggins@cftc.gov, Commodity Futures

    Trading Commission, Three Lafayette Centre, 1151 21st Street, NW.,

    Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act into

    law. Title VII of the Dodd-Frank Act amended the CEA to establish a

    comprehensive new regulatory framework for swaps and security-based

    swaps. The legislation was enacted to reduce risk, increase

    transparency, and promote market integrity within the financial system

    by, among other things: (1) Providing for the registration and

    comprehensive regulation of swap dealers and major swap participants;

    (2) imposing clearing and trade execution requirements on standardized

    derivative products; (3) creating robust recordkeeping and real-time

    reporting regimes; and (4) enhancing the Commission's rulemaking and

    enforcement authority with respect to, among others, all registered

    entities and intermediaries.

    In the wake of the financial crisis of 2008, Congress adopted

    section 753 of the Dodd-Frank Act, which provided the Commission with

    additional and broad authority to prohibit fraud and manipulation. In

    the following paragraphs, the Commission summarizes Dodd-Frank Act

    section 753's amendments to CEA section 6(c).

    New section 6(c)(1), the full text of which is provided in Section

    III below, broadly prohibits the use or employment of, or an attempt to

    use or employ, any ``manipulative or deceptive device or contrivance''

    in contravention of such rules and regulations as the Commission

    ``shall promulgate no later than 1 year after the date of enactment''

    of the Dodd-Frank Act.

    As discussed below, final Rule 180.1 implements the provisions of

    CEA section 6(c)(1) by prohibiting, among other things, manipulative

    and deceptive devices, i.e., fraud and fraud-based manipulative devices

    and contrivances employed intentionally or recklessly, regardless of

    whether the conduct in question was intended to create or did create an

    artificial price. This final Rule will help promote the integrity of

    the markets, and protect market participants.

    Section 6(c)(1)(A), a ``Special Provision for Manipulation by False

    Reporting,'' extends the Commission's prohibition against unlawful

    manipulation to include ``delivering, or causing to be delivered for

    transmission through the mails or interstate commerce, by any means of

    communication whatsoever, a false or misleading or inaccurate report

    concerning crop or market information or conditions that affect or tend

    to affect the price of any commodity in interstate commerce, knowing,

    or acting in reckless disregard of the fact that such report is false,

    misleading or inaccurate.'' \1\ Importantly, section 6(c)(1)(C)

    provides a ``Good Faith Mistakes'' exception to this prohibition such

    that ``[m]istakenly transmitting, in good faith, false or misleading or

    inaccurate information to a price reporting service would not be

    sufficient to violate subsection (c)(1)(A).''

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    \1\ Section 9(a)(2) of the CEA, 7 U.S.C. 13(a)(2), also

    expressly prohibits false reporting.

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    Section 6(c)(2) prohibits the making of ``any false or misleading

    statement of a material fact to the Commission. * * *'' A prohibition

    regarding false statements to the Commission was previously included in

    section 6(c). Dodd-Frank Act section 753 expands the prohibition

    against false statements made in registration applications or reports

    filed with the Commission to include any statement of material fact

    made to the Commission in any context.

    CEA section 6(c)(3), the full text of which is provided in Section

    III below, makes it unlawful to ``manipulate or attempt to manipulate

    the price of any swap, or of any commodity in interstate commerce, or

    for future delivery on or subject to the rules of any registered

    entity.'' Final Rule 180.2 codifies section 6(c)(3).

    Section 753 of the Dodd-Frank Act also amends prior CEA section

    6(c) to provide, in cases of manipulation or attempted manipulation in

    violation of sections 6(c) or 9(a)(2), for a civil penalty of up to the

    greater of $1,000,000 or triple the monetary gain to the person for

    each such violation; and restitution to customers of damages

    proximately caused by violations of the person. For other violations,

    section 6(c)(10)(C) provides for a civil penalty of not more than an

    amount equal to the greater of $140,000 or triple the monetary gain for

    each such violation.

    Finally, section 753 of the Dodd-Frank Act provides that the above-

    summarized amendments to CEA section 6(c) ``shall take effect on the

    date on which the final rule promulgated by the Commodity Futures

    Trading Commission pursuant to this Act takes effect.'' The final Rules

    will take effect 30 days after publication in the Federal Register.

    II. The Rulemaking Proceeding Under CEA Section 6(c)

    This rulemaking proceeding \2\ began with the issuance of a Notice

    of Proposed Rulemaking (``NOPR'') on October 26, 2010, which was

    published in the Federal Register on November 3, 2010.\3\ Pursuant to

    CEA section 6(c),\4\ as amended by section 753 of the Dodd-Frank Act,

    the Commission proposed to add a new Part 180 to Title 17 of the Code

    of Federal Regulations. In the NOPR, the Commission solicited comments

    on all aspects of proposed Part 180. Twenty-seven parties filed

    comments, representing a variety of interested parties, including a

    member of the United States Congress, a law professor, economists,

    industry members and trade associations, energy news and price

    reporting organizations, designated contract markets

    [[Page 41399]]

    (exchanges), a government-sponsored enterprise, and members of the

    public.\5\

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    \2\ Rulemaking documents are available at: (http://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/23_DFManipulation/index.htm).

    \3\ Prohibition of Market Manipulation, 75 FR 67657 (Nov. 3,

    2010).

    \4\ Section 753 of the Dodd-Frank Act directed the Commission to

    promulgate implementing rules and regulations by not later than one

    year after the date of enactment of the Dodd-Frank Act.

    \5\ Attachment A contains a list of the 27 parties who submitted

    comments related to this rulemaking.

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    Upon careful review and consideration of the entire record in this

    rulemaking and based on its extensive market regulation experience, the

    Commission has determined that it is appropriate and in the public

    interest to adopt the final Rules, which among other things, define for

    the public the statutory prohibition under CEA section 6(c)(1) against

    using or employing ``any manipulative or deceptive device or

    contrivance'' in connection with any swap, or a contract of sale of any

    commodity in interstate commerce, or for future delivery on or subject

    to the rules of any registered entity. Consistent with section 6(c)(1),

    the final Rule 180.1 prohibits, among other things, fraud and fraud-

    based manipulative schemes, employed intentionally or recklessly (as

    discussed below), regardless of whether the conduct in question was

    intended to or did create an artificial price. Final Rules 180.1 and

    180.2 will help to promote the integrity of the markets, and protect

    market participants.

    After carefully reviewing the entire rulemaking record, the

    Commission finds it unnecessary to change the wording of the proposed

    regulatory text, except in one respect: Adding ``inaccurate'' to

    section 180.1(a)(4) (``* * * no violation of this subsection shall

    exist where the person mistakenly transmits, in good faith, false or

    misleading or inaccurate information to a price reporting service.'').

    This change is necessary to ensure symmetry between final Rule 180.1

    and CEA section 6(c)(1)(C). However, based on the public comments, the

    Commission has determined to provide clarification and interpretive

    guidance in this Preamble to final Rules 180.1 and 180.2.

    The Commission's statutory and legal basis for promulgating the

    final Rules, their purpose, and the Commission's responses to comments

    filed in this rulemaking, are discussed below.

    III. Statutory Basis for the Final Rules

    CEA section 6(c)(1), entitled ``Prohibition Against Manipulation,''

    is the statutory basis for final Rule 180.1, and provides that:

    It shall be unlawful for any person, directly or indirectly, to

    use or employ, or attempt to use or employ, in connection with any

    swap, or a contract of sale of any commodity in interstate commerce,

    or for future delivery on or subject to the rules of any registered

    entity, any manipulative or deceptive device or contrivance, in

    contravention of such rules and regulations as the Commission shall

    promulgate by not later than 1 year after the date of enactment of

    the [Dodd-Frank Act], provided no rule or regulation promulgated by

    the Commission shall require any person to disclose to another

    person nonpublic information that may be material to the market

    price, rate, or level of the commodity transaction, except as

    necessary to make any statement made to the other person in or in

    connection with the transaction not misleading in any material

    respect.

    CEA section 6(c)(3), entitled ``Other Manipulation,'' provides

    that:

    [I]t shall be unlawful for any person, directly or indirectly,

    to manipulate or attempt to manipulate the price of any swap, or of

    any commodity in interstate commerce, or for future delivery on or

    subject to the rules of any registered entity.

    CEA section 6(c)(3) and the Commission's general rulemaking

    authority pursuant to CEA section 8a(5) provide the statutory basis for

    final Rule 180.2.

    Commenters are overwhelmingly supportive of the Commission's

    efforts to implement clear and fair rules designed to protect market

    participants and promote the integrity of the markets. In the following

    sections, the Commission summarizes and responds to the comments

    received in this rulemaking.

    IV. Discussion of CEA Section 6(c)(1) and Final Rule 180.1

    A. Overview

    The language of CEA section 6(c)(1), particularly the operative

    phrase ``manipulative or deceptive device or contrivance,'' is

    virtually identical to the terms used in section 10(b) of the

    Securities Exchange Act of 1934 (``Exchange Act'').\6\ The Supreme

    Court has interpreted these words to ``clearly connot[e] intentional

    misconduct.'' \7\ The Court has also stated that the statute was

    ``designed as a catchall clause to prevent fraudulent practices.'' \8\

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    \6\ 15 U.S.C. 78j(b). Differences between the wording of

    Exchange Act Section 10(b) and CEA section 6(c)(1) include, but are

    not limited to, the express prohibition of the ``attempt to use''

    any ``manipulative or deceptive device or contrivance'' in CEA

    section 6(c)(1), and the absence of a ``purchase or sale''

    requirement in CEA section 6(c)(1). The Commission understands that

    under SEC Rule 10b-5 a plaintiff is not required to prove that money

    was actually invested in a specific security. See, e.g., SEC v.

    Zandford, 535 U.S. 813, 819-21 (2002).

    \7\ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 201 (1976).

    \8\ Chiarella v. United States, 445 U.S. 222, 226 (1980), citing

    Hochfelder, 425 U.S. at 202, 206.

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    Based on the language in Exchange Act section 10(b), the Securities

    and Exchange Commission (``SEC'') promulgated SEC Rule 10b-5, which

    makes it unlawful for any person:

    (a) To employ any device, scheme, or artifice to defraud,

    (b) To make any untrue statement of a material fact or to omit

    to state a material fact necessary in order to make the statements

    made, in the light of the circumstances under which they were made,

    not misleading, or

    (c) To engage in any act, practice, or course of business which

    operates or would operate as a fraud or deceit upon any person, in

    connection with the purchase or sale of any security.\9\

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    \9\ 17 CFR 240.10b-5.

    Given the similarities between CEA section 6(c)(1) and Exchange Act

    section 10(b), the Commission deems it appropriate and in the public

    interest to model final Rule 180.1 on SEC Rule 10b-5.\10\ To account

    for the differences between the securities markets and the derivatives

    markets, the Commission will be guided, but not controlled, by the

    substantial body of judicial precedent applying the comparable language

    of SEC Rule 10b-5.\11\ Such extensive judicial review serves as an

    important benefit to the Commission and provides the public with

    increased certainty because the terms of Exchange Act Section 10(b) and

    SEC Rule 10b-5 have withstood challenges to their constitutionality in

    both civil and criminal matters.\12\

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    \10\ See, e.g., Morissette v. United States, 342 U.S. 246, 263

    (1952) (noting that where Congress borrows terms of art it

    ``presumably knows and adopts the cluster of ideas that were

    attached to each borrowed word''); Nat'l Treasury Employees Union v.

    Chertoff, 452 F.3d 839, 857 (DC Cir. 2006) (stating that ``[t]here

    is a presumption that Congress uses the same term consistently in

    different statutes'').

    \11\ Further, by modeling final Rule 180.1 on SEC Rule 10b-5,

    the Commission takes an important step toward harmonization of

    regulation of the commodities, commodities futures, swaps and

    securities markets given that new CEA section 6(c)(1) and Exchange

    Act Section 10(b) include virtually identical prohibitions against

    ``any manipulative or deceptive device or contrivance.''

    \12\ See, e.g., United States v. Persky, 520 F.2d 283, 287 (2d

    Cir. 1975) (rejecting criminal defendant's argument that Exchange

    Act section 10(b) and SEC Rule 10b-5 are unconstitutionally vague);

    SEC v. Pirate Investor LLC, 580 F.3d 233, 254 (4th Cir. 2009)

    (upholding civil judgment and finding that ``[a]ppellants' reliance

    on any ambiguity in the [section 10(b)] phrase `in connection with'

    as a reason to employ the canon of constitutional avoidance fails in

    light of the statute's purpose--providing a flexible regime for

    addressing new, perhaps unforeseen, types of fraud''), cert. denied,

    130 S. Ct. 3506, 2010 U.S. LEXIS 5345 (2010). The Federal Energy

    Regulatory Commission and the Federal Trade Commission have relied

    upon a statutory framework largely identical to Exchange Act section

    10(b) when promulgating rules similar to SEC Rule 10b-5. In so

    doing, both agencies have stated their intent to be guided by

    securities law precedent, as appropriate to their unique regulatory

    missions. FERC, Prohibition of Energy Market Manipulation, 71 FR

    4244, 4250 (Jan. 26, 2006) (FERC final anti-manipulation rule); FTC,

    Prohibitions on Market Manipulation, 74 FR 40686, 40688-89 (Aug. 12,

    2009) (FTC final anti-manipulation rule).

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    [[Page 41400]]

    Final Rule 180.1 prohibits fraud and fraud-based manipulations, and

    attempts: (1) By any person (2) acting intentionally or recklessly (3)

    in connection with (4) any swap, or contract of sale of any commodity

    in interstate commerce, or contract for future delivery on or subject

    to the rules of any registered entity (as defined in the CEA). CEA

    section 6(c)(1) and final Rule 180.1, like Exchange Act section 10(b)

    and SEC Rule 10b-5 upon which they are modeled, focus on conduct

    involving manipulation or deception.\13\

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    \13\ Santa Fe Industries v. Green, 430 U.S. 462, 473-76 (1977);

    Dirks v. SEC, 463 U.S. 646, 667 n. 27 (1983) (concluding that ``to

    constitute a violation of Rule 10b-5, there must be fraud'');

    Chiarella v. United States, 445 U.S. 222, 234-35 (1980) (stating

    that Exchange Act ``section 10(b) is aptly described as a catchall

    provision, but what it catches must be fraud''); Ernst & Ernst v.

    Hochfelder, 425 U.S. 185, 199 (1976) (rejecting argument for

    imposition of negligence standard that ``simply ignore[d] the use of

    the words `manipulative,' `device,' and `contrivance'--terms that

    make unmistakable a congressional intent to proscribe a type of

    conduct quite different from negligence. Use of the word

    `manipulative' is especially significant. It is and was virtually a

    term of art when used in connection with securities markets. It

    connotes intentional or willful conduct designed to deceive or

    defraud investors by controlling or artificially affecting the price

    of securities'') (internal citations omitted).

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    In the following paragraphs, the Commission addresses the comments

    that pertain to final Rule 180.1 in the following categories: (1) Scope

    of application of the final Rule; (2) disclosure implications of the

    final Rule; (3) operation of the provision prohibiting material

    misstatements and omissions; (4) statutory exception for good faith

    mistakes; (5) required scienter for a violation of the final Rule; (6)

    scope of the phrase ``in connection with''; and (7) penalty, procedure,

    effect on automated trading systems, and a proposal to define

    manipulation.\14\

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    \14\ The extent to which securities law precedent should apply

    is an issue that commenters often linked to more specific comments

    pertaining to the interpretation of the statute and proposed rule

    text. As such, the Commission considers commenters' views about

    securities law precedent in the specific contexts in which they

    arise.

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    B. The Scope of the Application of Final Rule 180.1

    1. Comments

    The Commission received several comments on the scope of the

    application of proposed Rule 180.1. United States Senator Carl Levin

    (``Senator Levin''), Chairman of the Permanent Subcommittee on

    Investigations, Committee on Homeland Security and Governmental

    Affairs, believes that the CFTC and SEC should harmonize their

    regulatory structures for combating disruptive and manipulative

    activities.\15\

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    \15\ Senator Levin Comment Letter at pages 3-4.

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    Better Markets, a non-profit public interest advocacy organization,

    states that the proposed Rules are critical to implementing the

    important expansion of the Commission's enforcement capability so that

    the transparent and reliable marketplace envisioned by the Dodd-Frank

    Act can be realized.\16\ Similarly, the Council of Institutional

    Investors (``Council'') supports proposed Rule 180.1 and believes that

    it will help promote the integrity of the price discovery process and

    fair dealing between market participants. The Council believes that, if

    accompanied by robust enforcement, the proposed Rule would promote

    investor confidence in the markets and contribute to the overall safety

    and soundness of the financial system.\17\ Likewise, the Petroleum

    Marketers Association of America (``PMAA'') believes that proposed

    Rules 180.1 and 180.2 will effectively implement the statutory and

    Congressional directive to clearly delineate and prevent impermissible

    conduct by market participants.\18\

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    \16\ Better Markets Comment Letter at page 1.

    \17\ Council Comment Letter at pages 1-2.

    \18\ PMAA Comment Letter at page 1.

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    University of Maryland School of Law Professor Michael Greenberger

    (``Professor Greenberger'') believes that proposed Rule 180.1 reflects

    an effective anti-manipulation rule mandated by section 753 of the

    Dodd-Frank Act. Professor Greenberger further believes that the

    Commission correctly asserts that proposed Rule 180.1 be given a broad,

    remedial reading similar to SEC Rule 10b-5.\19\

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    \19\ Professor Greenberger Comment Letter at page 2.

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    The CME Group, Inc. (``CME Group'') and the Commodity Markets

    Council (``CMC'') believe that proposed Rules 180.1 and 180.2 are vague

    and fail to provide market participants with sufficient notice of

    whether contemplated trading practices run afoul of a prohibition.\20\

    Further, CME Group and CMC believe that proposed Rule 180.1 is

    susceptible to constitutional challenge under the Due Process

    Clause.\21\

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    \20\ CME Group Comment Letter at pages 2-3; CMC Comment Letter

    at page 2.

    \21\ CME Group at page 3; CMC at page 2.

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    The Futures Industry Association (``FIA''), International Swaps and

    Derivatives Association, Inc. (``ISDA''), and the Securities Industry

    and Financial Markets Association (``SIFMA'') (together, ``the

    Associations'') believe that the Commission should clarify the scope of

    the proposed regulation, the Commission's existing anti-manipulation

    authority under CEA section 9(a)(2), and its anti-fraud authority under

    CEA section 4b.\22\ The Associations urge the Commission to remove from

    all subparts of the proposed Rule language that prohibits an

    ``attempt'' to manipulate and to clarify that the requirements for

    attempted manipulation remain consistent with current law under CEA

    section 6(c).\23\ The Managed Funds Association (``MFA'') believes that

    the Commission should interpret CEA section 6(c)(1) merely to clarify

    and refine the Commission's authority over swaps, and not to create any

    new antifraud authority or to create any new duties or obligations.\24\

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    \22\ Associations Comment Letter at page 9.

    \23\ Associations at page 8.

    \24\ MFA Comment Letter at pages 6-7.

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    The American Petroleum Institute (``API'') together with the

    National Petrochemical and Refiners Association (``NPRA''), and the

    Coalition of Physical Energy Companies (``COPE'') state that Congress

    intended the scope of section 753 of the Dodd-Frank Act to address only

    actual fraudulent manipulation of the commodities markets.\25\ Absent a

    manipulative effect on the market, API and NPRA believe that there

    should be no liability under proposed Rule 180.1.\26\ Further, API and

    NPRA state that the Commission should require proof that a party's

    deceptive or fraudulent conduct caused market conditions to deviate

    materially from the conditions that would have existed but for that

    conduct.\27\ Similarly, the Derivatives and Futures Law Committee of

    the Business Law Section of the American Bar Association (``ABA

    Derivatives Committee'') states that any Commission rules under CEA

    section 6(c)(1) should expressly target intentional or extremely

    reckless deceitful conduct specifically intended to cause artificial

    prices by corrupting or disabling the integrity of market price-setting

    processes and mechanisms rather than by a general anti-fraud rule

    patterned on SEC Rule 10b-5.\28\ The ABA Derivatives Committee believes

    that mere unfairness or impermissible overreaching without deception

    does not violate section 10(b) or SEC Rule 10b-5 thereunder.\29\

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    \25\ API and NPRA Comment Letter at page 3; COPE Comment Letter

    at page 2.

    \26\ API and NPRA at pages 2, 9, and 24.

    \27\ API and NPRA at page 10.

    \28\ ABA Derivatives Committee Comment Letter at pages 5 and 11-

    13. According to the ABA Derivatives Committee, ``[a] rule that does

    not require evidence of a specific intent to cause artificial market

    prices as an element of a violation would result in a dangerously

    vague rule * * * [which] could expose participants to the threat of

    arbitrary and unfair enforcement.'' Id. at page 12.

    \29\ ABA Derivatives Committee at page 6.

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    [[Page 41401]]

    Freddie Mac recommends that the Commission strengthen the

    protection of customers by clarifying that CEA section 6(c), as amended

    by section 753 of the Dodd-Frank Act and implemented by proposed Rule

    180.1, expressly prohibits ``front running'' and similar misuse of

    customer information by swap dealers as a form of fraud-based

    manipulation.\30\

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    \30\ Freddie Mac Comment Letter at pages 1-5.

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    2. Commission Determination

    Upon review of the entire rulemaking record, the Commission

    determines that final Rule 180.1 is in the public interest and provides

    fair, reasonable, and adequate notice of the prohibited conduct. With

    respect to comments claiming that final Rule 180.1 is susceptible to a

    due process constitutional challenge because it purportedly does not

    give market participants fair notice of the prohibited conduct, the

    Commission notes that final Rule 180.1 is modeled on SEC Rule 10b-5,

    which has been subjected to extensive judicial review and has withstood

    constitutional challenges, including those based on a fair notice

    argument.\31\

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    \31\ The fair notice argument has been repeatedly rejected in

    the SEC Rule 10b-5 context in a wide variety of fact patterns. See,

    e.g., United States v. Carpenter, 791 F.2d 1024 (2d Cir. 1986),

    aff'g in part and rev'g in part United States v. Winans, 612 F.

    Supp. 827, 848 (S.D.N.Y. 1985); United States v. Newman, 664 F.2d

    12, 18-19 (2d Cir. 1981), aff'd after remand, 722 F.2d 729 (2d

    Cir.), cert. denied, 464 U.S. 863 (1983); United States v.

    Chiarella, 588 F.2d 1358, 1369 (2d Cir. 1978); United States v.

    Brown, 555 F.2d 336, 339-40 (2d Cir. 1977); United States v. Persky,

    520 F.2d 283, 286-88 (2d Cir. 1975); SEC v. Shapiro, 494 F.2d 1301,

    1308 (2d Cir. 1974).

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    In response to comments requesting clarification regarding the

    relationship among final Rule 180.1 and existing CEA sections 4b and

    9(a)(2), the Commission notes that section 753(a) of the Dodd-Frank Act

    makes clear that nothing in new CEA section 6(c)(1) ``shall affect, or

    be construed to affect, the applicability of section 9(a)(2).''

    Likewise, the Commission finds nothing in CEA section 6(c)(1) or final

    Rule 180.1 that affects, or should be construed to affect, the

    applicability of CEA section 4b.\32\ Section 6(c)(1) and final Rule

    180.1 augment the Commission's existing authority to prohibit fraud and

    manipulation.

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    \32\ Section 4b of the CEA, 7 U.S.C. 6b, prohibits, for example,

    a person from defrauding another person in connection with the

    making of commodity futures contracts for or on behalf of that other

    person. Clayton Brokerage Co. v. CFTC, 794 F.2d 573, 578 (11th Cir.

    1986). Thus, a broker's misrepresentations to his customer about

    risk may subject the broker to liability under CEA section 4b. Id.

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    The Commission declines to adopt the request of one commenter to

    remove language from proposed Rules 180.1 and 180.2 that make it a

    violation to ``attempt'' to engage in manipulation.\33\ The Commission

    is controlled by the language of CEA section 6(c)(1), which

    specifically directs the Commission to prohibit the ``attempt[ed]'' use

    or employment of any manipulative or deceptive devices or

    contrivances.\34\

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    \33\ Associations at page 8.

    \34\ The Commission understands that courts interpreting the

    statutory phrase ``any manipulative or deceptive device'' as it is

    used in Section 10(b) of the Exchange Act have deemed it broad

    enough to encompass an attempt. See, e.g., SEC v. Martino, 255 F.

    Supp. 2d 268, 287 (S.D.N.Y. 2003) (``[A]n attempted manipulation is

    as actionable as a successful one'').

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    The Commission declines to adopt the request of certain commenters

    to interpret CEA section 6(c)(1) as merely extending the Commission's

    existing anti-fraud and anti-manipulation authority to cover swaps.

    Such an interpretation would be inconsistent with the language of CEA

    section 6(c)(1), as amended by section 753 of the Dodd-Frank Act, under

    which Congress granted the Commission broad new authority to prohibit

    ``any manipulative or deceptive device or contrivance'' in connection

    with any swap, or a contract of sale of any commodity in interstate

    commerce, or for future delivery on or subject to the rules of any

    registered entity.

    The Commission intends to interpret and apply CEA section 6(c)(1)

    and final Rule 180.1 ``not technically and restrictively, but flexibly

    to effectuate its remedial purposes.''\35\ Comments that the

    Commission's use of the word ``commodity'' in proposed Rule 180.1

    ``indicates that the rule will apply to virtually every commercial

    transaction in the economy'' are misplaced.\36\ The final Rule requires

    a fraud or manipulation, or attempted fraud or manipulation, and that

    the fraud or manipulation or attempted fraud or manipulation, be ``in

    connection with'' any swap, or contract of sale of any commodity in

    interstate commerce, or contract for future delivery on or subject to

    the rules of any registered entity. The ``in connection with''

    requirement is discussed in subsection G. below. And although CEA

    section 6(c)(1) and final Rule 180.1 give the Commission broad

    enforcement authority to prohibit fraud and manipulation in connection

    with a contract of sale for any commodity in interstate commerce, the

    Commission expects to exercise its authority under 6(c)(1) to cover

    transactions related to the futures or swaps markets, or prices of

    commodities in interstate commerce, or where the fraud or manipulation

    has the potential to affect cash commodity, futures, or swaps markets

    or participants in these markets.\37\ This application of the final

    Rule respects the jurisdiction that Congress conferred upon the

    Commission and fulfills its core mission and the purposes of the Act to

    protect market participants and promote market integrity.

    ---------------------------------------------------------------------------

    \35\ See, e.g., Zandford, 535 U.S. at 819 (where a statute has a

    remedial purpose such as the prevention of fraud, the statute should

    be construed ``not technically and restrictively, but flexibly to

    effectuate its remedial purposes'') (internal quotation marks and

    citations omitted). See also R&W Technical Servs., Ltd. v. CFTC, 205

    F.3d 165, 173 (5th Cir. 2000) (In 1974, Congress gave the CFTC

    ``even greater enforcement powers in part because of the fear that

    unscrupulous individuals were encouraging amateurs to trade in the

    commodities markets through fraudulent advertising. Remedial

    statutes are to be construed liberally, and in an era of increasing

    individual participation in commodities markets, the need for such

    protection has not lessened'').

    \36\ API and NPRA at page 3.

    \37\ By way of non-exclusive example, if an entity employed a

    deceptive device to sell precious metals to customers as a way for

    the customers to speculate on the value of such commodities, or if

    an entity employed a deceptive device to sell an agricultural

    commodity to persons seeking to hedge price risk in that commodity,

    depending on the facts and circumstances, the Commission would

    exercise its authority against the entity under Section 6(c)(1) and

    final Rule 180.1.

    ---------------------------------------------------------------------------

    The foregoing should not be interpreted, however, to mean that a

    violation of final Rule 180.1 necessarily requires proof of a market or

    price effect, as some commenters' recommend. It does not.\38\ A market

    or price effect may well be indicia of the use or employment of a

    manipulative or deceptive device or contrivance; nonetheless, a

    violation of final Rule 180.1 may exist in the absence of any market or

    price effect.\39\

    ---------------------------------------------------------------------------

    \38\ In interpreting Exchange Act section 10(b) and SEC Rule

    10b-5, the Supreme Court has recognized that the interest in

    preserving the integrity of the securities markets was one of the

    purposes animating Exchange Act section 10(b), but rejected the

    notion that section 10(b) is limited to serving that objective

    alone. See Superintendent of Ins. of N.Y. v. Bankers Life & Casualty

    Co., 404 U.S. 6, 11-13 (1971).

    \39\ Id.

    ---------------------------------------------------------------------------

    In response to comments requesting that ``front-running'' and

    similar misuse of customer information be considered a form of fraud-

    based manipulation under final Rule 180.1, the Commission declines to

    adopt any per se rule in this regard, but clarifies that final Rule

    180.1 reaches all manner of fraud and manipulation within the scope of

    the statute it implements, CEA section 6(c)(1).

    C. The Disclosure Implications of Final Rule 180.1

    1. Comments

    Some commenters express concern regarding whether proposed Rule

    180.1

    [[Page 41402]]

    would impose new disclosure obligations on commodities market

    participants.\40\ According to the Associations, MFA, CME Group, CMC,

    COPE, and the Working Group of Commercial Energy Firms (``CEF''),

    futures, options, swaps, and physical commodity markets are different

    from securities markets, which have extensive disclosure obligations,

    and nothing in the CEA mandates disclosure of market conditions or

    facts pertaining to the markets for commodities.\41\

    ---------------------------------------------------------------------------

    \40\ See, e.g., Associations at pages 1-5; MFA at pages 2-4; CME

    Group at pages 2-3; CMC at page 2. The Associations assert, for

    example, that unlike the securities antifraud laws and rules, which

    are designed primarily for investor protection, the antifraud

    provisions in the futures markets are focused in large part,

    although not exclusively, on protections against manipulation.

    Associations at page 4.

    \41\ See, e.g., Associations at pages 1-5; MFA at pages 2-5; CME

    Group at pages 2-3; CMC at page 2; COPE at page 3; CEF Comment

    Letter at pages 3 and 8.

    ---------------------------------------------------------------------------

    The Associations, CEF, and MFA state that proposed Rule 180.1

    should not impose any new duties of disclosure, inquiry or diligence

    between two sophisticated parties to a bilateral transaction.\42\

    Likewise, the ABA Derivatives Committee believes the Commission should

    make clear that the anti-manipulation rule under section 6(c)(l) does

    not create any new duties of inquiry, diligence or disclosure to

    parties to futures, options, swaps or cash commodity transactions.\43\

    The ABA Derivatives Committee, the Associations, and MFA urge the

    Commission to make it explicit that any final Rule will be violated

    only if a party violates a pre-existing duty arising under contract,

    common law, or some other non-CEA source.\44\

    ---------------------------------------------------------------------------

    \42\ Associations at page 4; CEF at page 8; MFA at pages 2 and

    4.

    \43\ ABA Derivatives Committee at page 15.

    \44\ ABA Derivatives Committee at page 15; Associations at pages

    4-5; MFA at pages 4-5.

    ---------------------------------------------------------------------------

    API and NPRA urge the Commission to state explicitly that silence,

    pure omissions (omissions that do not relate to explicit

    representations), and ``no comment'' statements are not actionable.

    They also contend that ``[t]here should be no affirmative duty to

    convey information to a counterparty in the nature of the reporting and

    information requirements as under securities law.'' \45\ Similarly, API

    and NPRA recommend that the Commission confirm that there is no duty to

    update statements that were truthful at the time that they were

    made.\46\ CME Group states that the duty to correct inaccurate

    statements should be limited to circumstances where a futures market

    participant realizes a statement was incorrect when the statement was

    made.\47\

    ---------------------------------------------------------------------------

    \45\ API and NPRA at page 19.

    \46\ API and NPRA at page 24.

    \47\ CME Group at page 8.

    ---------------------------------------------------------------------------

    The Associations seek clarification that proposed Rule 180.1 will

    not impede the ability of market participants to take positions and

    trade on the basis of nonpublic information that they obtain

    legitimately (i.e., not through the breach of a pre-existing duty to

    keep such information confidential or through another party's similar

    breach of a pre-existing duty).\48\ CME Group further states that the

    Commission should not adopt a ``misappropriation'' theory of ``insider

    trading''--that is, where one misappropriates confidential information

    for securities trading purposes, in breach of a duty owed to the source

    of the information.\49\ The ABA Derivatives Committee recommends the

    Commission make clear that securities law doctrines such as the

    prohibition on insider trading and the ``fraud-on-the-market'' theory

    do not apply under the final Rule.\50\

    ---------------------------------------------------------------------------

    \48\ Associations at page 5.

    \49\ CME Group at pages 4-5.

    \50\ ABA Derivatives Committee at pages 8-9 (stating that the

    fraud-on-the-market theory ``establishes a rebuttable presumption in

    private rights of action under Exchange Act Section 10(b) and SEC

    Rule 10b-5 that in an efficient market for a security a plaintiff

    can be held to have relied on a defendant's fraudulent

    misrepresentation or omission in connection with the purchase or

    sale of a security--even if the plaintiff was not aware of the

    misrepresentation or omission--by virtue of the plaintiff's reliance

    on the fact that a security's price reflects the fraudulent

    misrepresentation and omission'') (citations omitted) (emphasis in

    original).

    ---------------------------------------------------------------------------

    The West Virginia Oil Marketers & Grocers Association (``OMEGA'')

    states that trading based on inside information should be

    prohibited.\51\

    ---------------------------------------------------------------------------

    \51\ OMEGA Comment Letter at page 3; accord Mr. Peter Carini

    Comment Letter at page 3; Pen Fern Oil Co., Inc. Comment Letter at

    page 3; Scullin Oil Co. Comment Letter at page 3.

    ---------------------------------------------------------------------------

    Responding to other commenters that the CFTC should not incorporate

    the standards and case law under SEC Rule 10b-5, Professor Greenberger

    states that the anti-manipulation rules and regulations are not bound

    by the legal frameworks of the two markets. Professor Greenberger

    states that the focal point of these anti-manipulation rules is to

    maintain market integrity, which is a common goal shared by both the

    securities and futures markets.\52\

    ---------------------------------------------------------------------------

    \52\ Professor Greenberger at pages 2-4. Professor Greenberger

    further states that the influx of capital from retail investors to

    the commodity markets through Exchange Traded Funds has changed the

    dynamics of the futures markets. Id.

    ---------------------------------------------------------------------------

    PMAA believes that the Commission, in relying on SEC Rule 10b-5, is

    cognizant of and more than capable of advancing its distinct regulatory

    responsibilities in ensuring a transparent marketplace free from

    manipulation.\53\ PMAA believes that proposed Rule 180.1 will

    effectively implement the statutory and Congressional directive to

    clearly delineate and prevent impermissible conduct by market

    participants.\54\

    ---------------------------------------------------------------------------

    \53\ PMAA at page 1.

    \54\ PMAA at page 2.

    ---------------------------------------------------------------------------

    2. Commission Determination

    As a general matter, the Commission does not believe that final

    Rule 180.1, or the statute it implements, are problematic or will

    create uncertainty as to the existence of disclosure obligations when

    applied to the markets the Commission regulates. This is not to say

    that commenters did not raise valid concerns about how securities law

    precedent will be applied in the commodities markets with respect to

    disclosure obligations. The Commission believes that Congress addressed

    these concerns, however, by enacting CEA section 6(c)(1), which

    provides that ``no rule or regulation promulgated by the Commission

    shall require any person to disclose to another person nonpublic

    information that may be material to the market price, rate, or level of

    the commodity transaction, except as necessary to make any statement

    made to the other person in or in connection with the transaction not

    misleading in any material respect.'' To be clear, the Commission is

    not, by this rulemaking, imposing any new affirmative duties of

    inquiry, diligence, or disclosure.\55\

    ---------------------------------------------------------------------------

    \55\ The derivatives markets are not, however, caveat emptor

    markets. The CEA has many provisions designed to protect market

    participants through disclosure requirements applicable to

    Commission registrants. See, e.g., 17 CFR part 155 (risk disclosure

    obligations); 17 CFR 4.20-27 (duties and disclosure obligations on

    Commodity Pool Operators). Depending on the facts and circumstances,

    violation of such duties could constitute a violation of the final

    Rule.

    ---------------------------------------------------------------------------

    Further, it is not a violation of final Rule 180.1 to withhold

    information that a market participant lawfully possesses about market

    conditions. The failure to disclose such market information prior to

    entering into a transaction, either in an anonymous market setting or

    in bilateral negotiations, will not, by itself, constitute a violation

    of final Rule 180.1. Therefore, the Commission clarifies that silence,

    absent a pre-existing duty to disclose, is not deceptive within the

    meaning of final Rule 180.1.\56\ Similarly, the Commission interprets

    ``no comment'' statements as

    [[Page 41403]]

    ``generally the functional equivalent of silence.'' \57\

    ---------------------------------------------------------------------------

    \56\ Cf. Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17 (1988)

    (``Silence, absent a duty to disclose, is not misleading under [SEC]

    Rule 10b-5'').

    \57\ Id. (internal quotation marks and citation omitted).

    ---------------------------------------------------------------------------

    The Commission received comments regarding hedging or speculating

    (i.e., trading) on the basis of material nonpublic information.\58\

    These comments use the label ``insider trading,'' which can mean

    different things in different contexts. The Commission recognizes that

    unlike securities markets, derivatives markets have long operated in a

    way that allows for market participants to trade on the basis of

    lawfully obtained material nonpublic information. This final Rule does

    not prohibit trading on the basis of material nonpublic information

    except as provided in the following paragraph or otherwise prohibited

    by law.\59\ Further, the Commission reiterates that the final Rule does

    not create an affirmative duty of disclosure (except, as provided by

    section 6(c)(1), ``as necessary to make any statement made to the other

    person in or in connection with the transaction not misleading in any

    material respect'').

    ---------------------------------------------------------------------------

    \58\ See, e.g., Associations at page 5; MFA at page 5.

    \59\ See, e.g., Dodd-Frank Act section 746, amending CEA section

    4c(a) (7 U.S.C. 6c(a)).

    ---------------------------------------------------------------------------

    Depending on the facts and circumstances, a person who engages in

    deceptive or manipulative conduct in connection with any swap, or

    contract of sale of any commodity in interstate commerce, or contract

    for future delivery on or subject to the rules of any registered

    entity, for example by trading on the basis of material nonpublic

    information in breach of a pre-existing duty (established by another

    law or rule, or agreement, understanding, or some other source), or by

    trading on the basis of material nonpublic information that was

    obtained through fraud or deception, may be in violation of final Rule

    180.1. The Commission believes that this application of the final Rule

    would be consistent with our responsibility to protect market

    participants and promote market integrity and with our statement in the

    NOPR that section 6(c)(1) is a broad catch-all provision, reaching any

    manipulative or deceptive device or contrivance.'' \60\

    ---------------------------------------------------------------------------

    \60\ 75 FR at 67658.

    ---------------------------------------------------------------------------

    The Commission declines to adopt comments recommending outright

    rejection of the potential application of the ``fraud-on-the-market''

    theory under final Rule 180.1.\61\ The ``fraud-on-the-market'' theory

    includes a presumption of reliance, which is a required element in

    private rights of action arising under SEC Rule 10b-5. Unlike a private

    litigant, however, the government is not required to prove reliance in

    an enforcement action under SEC Rule 10b-5 just as it is not required

    to demonstrate harm to investors.\62\ Consistent with judicial

    interpretations of Exchange Act section 10(b) and SEC Rule 10b-5, the

    Commission does not interpret the final Rule as requiring a showing of

    reliance or harm to market participants in a government action brought

    under CEA section 6(c)(1) and final Rule 180.1. At the same time, we

    decline to opine on the required elements of a private right of action

    under CEA section 6(c)(1) and final Rule 180.1 as it is beyond the

    purview of this rulemaking.

    ---------------------------------------------------------------------------

    \61\ In the securities context, ``the `fraud-on-the-market'

    presumption helps investors who cannot demonstrate that they,

    themselves, relied on fraud that reached the market.'' Stoneridge In

    v. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 171

    (2008).

    \62\ See, e.g., Berko v. SEC, 316 F.2d 137, 143 (2d Cir. 1963)

    (finding reliance and injury to private shareholders ``legally

    irrelevant'' to the SEC's Exchange Act section 10(b) and SEC Rule

    10b-5 claim); see also United States v. Haddy, 134 F.3d 542 (3d Cir.

    1998) (concluding that securities laws did not require proof of

    reliance in an Exchange Act section 10(b) action brought by

    government).

    ---------------------------------------------------------------------------

    D. The Operation of the Provision Prohibiting Material Misstatements

    and Omissions

    1. Comments

    COPE states that inclusion of the words ``attempt to make'' any

    untrue or misleading statement of a material fact in proposed Rule

    180.1(a)(2) is vague and confusing. COPE requests that the Commission

    clarify proposed Rule 180.1(a)(2) to state that the proscribed acts

    must be done with the intent to deceive, manipulate, or defraud.\63\

    ---------------------------------------------------------------------------

    \63\ COPE at page 5.

    ---------------------------------------------------------------------------

    API and NPRA believe that the Commission should clarify that only

    statements and acts pertaining to transactions in futures, swaps, or

    commodities markets underlying futures or swaps may give rise to

    liability under proposed Rule 180.1.\64\ API and NPRA also believe that

    the Commission should exercise its discretion to exclude ``partial

    omissions'' from any final Rule.\65\

    ---------------------------------------------------------------------------

    \64\ API and NPRA at page 11.

    \65\ API and NPRA at page 23.

    ---------------------------------------------------------------------------

    Mr. Chris Barnard (``Barnard'') believes the proposed rules should

    apply to both positive misconduct and misconduct by omission given the

    ongoing nature of the rights and obligations that may be created in a

    swap agreement.\66\

    ---------------------------------------------------------------------------

    \66\ Barnard Comment Letter at page 2.

    ---------------------------------------------------------------------------

    2. Commission Determination

    The Commission declines to adopt comments recommending deletion of

    the phrase ``or attempt to make'' in final Rule subsection 180.1(a)(2).

    This phrase captures situations where a person attempts to employ a

    manipulative device or artifice to defraud. For example, when a

    supervisor attempts to have a subordinate make a fraudulent material

    misstatement or omission but that subordinate rebuffs the supervisor,

    the phrase ``or attempt to make'' would operate to reach the

    supervisor's attempted fraud.

    The Commission declines to modify the proposed Rule in response to

    comments requesting that only statements and acts pertaining to

    ``transactions'' in futures, swaps, or commodities markets underlying

    futures or swaps may give rise to liability under proposed Rule

    180.1.\67\ Rather, CEA section 6(c)(1) prohibits manipulative or

    deceptive devices or contrivances in connection with any swap, or a

    contract of sale of any commodity in interstate commerce, or for future

    delivery on or subject to the rules of any registered entity.\68\ The

    Commission also declines to make modifications in response to comments

    recommending that the Commission exercise its discretion to exclude

    ``partial omissions'' from the final Rule.\69\ Fraud-by-partial-

    omission or half-truths could violate final Rule 180.1 if the facts and

    circumstances of a particular case so warrant. Finally, the Commission

    declines to impose any restriction on final Rule 180.1(a)(2) to

    misstatements or omissions that distort or, in the case of an attempted

    violation of 180.1(a)(2), are likely to distort market conditions. Such

    a restriction would be tantamount to requiring a price or market effect

    for a violation of final Rule 180.1. As stated above, the Commission

    rejects any such requirement for a violation of final Rule 180.1

    because the statute it implements, CEA section 6(c)(1), imposes no such

    requirement.

    ---------------------------------------------------------------------------

    \67\ API and NPRA at page 11.

    \68\ See discussion in subsection G below.

    \69\ API and NPRA at page 23.

    ---------------------------------------------------------------------------

    E. The Statutory Exception for Good Faith Mistakes

    1. Comments

    When considering the application of final Rule 180.1(a)(2), several

    commenters asked the Commission to extend CEA section 6(c)(1)(C)'s

    provision for ``Good Faith Mistakes'' in the mistaken transmission of

    ``false or misleading or inaccurate information to a price reporting

    service'' to other

    [[Page 41404]]

    violations under CEA section 6(c)(1) and proposed Rule 180.1. API and

    NPRA request that the good faith exception be expanded to cover ``all

    public statements or reports by a market participant or other

    communications covered by the proposed rule.'' \70\ Platts seeks

    extension of CEA section 6(c)(1)(C)'s good faith mistakes exception to

    proposed Rules 180.1 and 180.2, and Argus Media, Inc. (``Argus'') asks

    the Commission to extend CEA section 6(c)(1)(C) to CEA section

    9(a)(2).\71\

    ---------------------------------------------------------------------------

    \70\ API and NPRA at page 25.

    \71\ Platts Comment Letter at pages 4-6; Argus Comment Letter at

    pages 1 and 5-6.

    ---------------------------------------------------------------------------

    2. Commission Determination

    In crafting CEA section 6(c)(1)(C), Congress could have extended

    the exception for good faith mistakes to all of CEA sections 6(c) and

    9(a)(2) but did not do so. Following the plain text of CEA section

    6(c)(1)(C), the Commission limited the good faith exception in final

    Rule 180.1 to the mistaken transmission of false or misleading or

    inaccurate information to a price reporting service. The Commission

    also makes clear that the scienter requirement of final Rule 180.1,

    final Rule 180.2, and CEA section 9(a)(2) functions to ensure that

    good-faith mistakes or negligence will not constitute a violation of

    the final Rules under any circumstance. Thus, a person lacking the

    requisite scienter cannot be found to have engaged in a manipulative or

    deceptive device or contrivance within the meaning of CEA section

    6(c)(1).

    F. The Required Scienter for a Violation of Final Rule 180.1

    1. Comments

    Several commenters asked the Commission to clarify the standard of

    scienter under proposed Rule 180.1.

    Senator Levin recommends that the Commission shift the burden of

    proof with respect to intent to market participants, which would

    require them to show that their conduct was not manipulative.\72\

    ---------------------------------------------------------------------------

    \72\ Senator Levin at page 4.

    ---------------------------------------------------------------------------

    API and NPRA state that the Commission should clarify that scienter

    may not be premised on the collective knowledge of an entire company,

    but instead must be based on the knowledge of the person participating

    in the deceptive or fraudulent conduct.\73\

    ---------------------------------------------------------------------------

    \73\ API and NPRA at page 18.

    ---------------------------------------------------------------------------

    The ABA Derivatives Committee, CEF, MFA, API and NPRA disagree with

    the Commission's proposal to adopt recklessness as the scienter

    requirement, believing instead that the language of the statute

    supports a specific intent standard.\74\ In the alternative, API and

    NPRA, CMC, Edison Electric Institute (``EEI''), MFA, and the

    Associations propose a standard of ``extreme recklessness.'' \75\

    Additionally, commenter COPE states that the Commission should make

    clear that the type of recklessness contemplated is not recklessness in

    a tort sense, but rather a business activity that diverges so greatly

    from rational market behavior as to indicate a fraudulent intent.\76\

    ---------------------------------------------------------------------------

    \74\ ABA Derivatives Committee at pages 11-13; CEF at page 5;

    MFA at pages 6-7; API and NPRA at pages 12-16. API and NPRA also

    believe that a recklessness standard may be appropriate in the

    highly regulated securities context with its fiduciary duties and

    strict disclosure requirements, but a recklessness standard in this

    context would increase the costs of complying with a market

    manipulation rule and deter market participants from disclosing

    relevant information that helps markets to function more

    efficiently.

    \75\ API and NPRA at page 17; CMC at page 2; EEI Comment Letter

    at page 4; MFA at page 6; Associations at pages 2 and 6-9.

    \76\ COPE at page 7.

    ---------------------------------------------------------------------------

    The ABA Derivatives Committee requests that in cases alleging

    manipulation under final Rule 180.1, the Commission must show a

    specific intent to cause an artificial price to satisfy the scienter

    requirement.\77\

    ---------------------------------------------------------------------------

    \77\ ABA Derivatives Committee at pages 11-15.

    ---------------------------------------------------------------------------

    CEF requests that if a recklessness standard is adopted, it should

    not extend to violations arising under CEA section 9(a)(2).\78\ In

    addition, CEF suggests that the Commission confirm that it will not

    adopt a scienter requirement ``that creates an implied presumption that

    sophisticated traders understand and are aware of the effects of their

    actions taken in the normal course of business on other commodity or

    securities markets.'' \79\

    ---------------------------------------------------------------------------

    \78\ CEF at page 7.

    \79\ CEF at page 7. Rather, CEF believes that the CFTC should

    evaluate alleged manipulation on a case-by-case basis, taking into

    consideration the facts and circumstances of each case.

    ---------------------------------------------------------------------------

    PMAA supports and encourages the Commission to adopt

    ``recklessness'' as the level of scienter, particularly when evaluating

    issues relating to algorithmic market manipulation.\80\ According to

    PMAA, the Commission's adoption of a ``recklessness'' standard in CEA

    section 4c(a)(7) and proposed Rules 180.1 and 180.2 should impose

    enhanced duties of diligence on those using or employing automated

    trading systems.\81\

    ---------------------------------------------------------------------------

    \80\ PMAA at page 2.

    \81\ PMAA at page 2.

    ---------------------------------------------------------------------------

    Mr. Clarence Townsend (``Townsend'') believes the standard of

    scienter should be strengthened to ``reckless manipulation.'' \82\

    ---------------------------------------------------------------------------

    \82\ Townsend Comment Letter at page 1.

    ---------------------------------------------------------------------------

    Professor Greenberger states that section 6(c)(1) lowers the

    standard of manipulation from ``knowingly'' to ``reckless.'' \83\

    Professor Greenberger states that CEA section 6(c)(1) was designed to

    empower the Commission with ``the same anti-manipulation standard

    employed by the [SEC] for more than 75 years, which has been upheld and

    defined in many court cases, including the Supreme Court.'' \84\

    ---------------------------------------------------------------------------

    \83\ Professor Greenberger at page 2.

    \84\ Professor Greenberger at page 2 (internal quotation marks

    and citation omitted). Professor Greenberger states that the

    Commission correctly proposes that judicial precedent interpreting

    and applying Exchange Act Section 10(b) and SEC Rule 10b-5 in the

    context of the securities markets should guide application of the

    scienter standard relevant to proposed Rule 180.1 given that

    proposed Rule 180.1 is modeled on SEC Rule 10b-5. Id. In Professor

    Greenberger's view, such judicial precedent ``will provide

    regulatory certainty and will not disrupt the market function.'' Id.

    ---------------------------------------------------------------------------

    The Air Transport Association (``ATA'') believes that the scienter

    standard should enable the Commission to police and punish a broader

    array of potentially manipulative conduct than is reachable under the

    CEA section 9(a)(2) anti-manipulation provision.\85\

    ---------------------------------------------------------------------------

    \85\ ATA Comment Letter at page 4.

    ---------------------------------------------------------------------------

    2. Commission Determination

    Upon consideration of all the comments in this rulemaking record,

    the Commission clarifies that a showing of recklessness is, at a

    minimum, necessary to prove the scienter element of final Rule

    180.1.\86\ Consistent with long-standing precedent under the

    commodities and securities laws, the Commission defines recklessness as

    an act or omission that ``departs so far from the standards of ordinary

    care that it is very difficult to believe the actor was not aware of

    what he or she was doing.'' \87\ Proof of knowledge, however, is not

    required.\88\ Certain commenter requests for a scienter standard of

    ``specific intent'' would unduly limit the scope of final Rule 180.1.

    Likewise,

    [[Page 41405]]

    in response to comments calling for a bifurcated approach to scienter

    under 6(c)(1) and final Rule 180.1, that is, specific intent to effect

    a price or price trend that does not reflect legitimate forces of

    supply and demand for non-fraud based manipulations, and ``extreme

    recklessness'' in fraud-based manipulations, the Commission states, as

    it did in the NOPR, that it will be guided, but not controlled by,

    judicial precedent interpreting and applying scienter under Exchange

    Act section 10(b) and SEC Rule 10b-5.\89\ At the same time, the

    Commission makes clear that final Rule 180.1 does not reach inadvertent

    mistakes or negligence. Final Rule 180.1 will not affect market

    participants engaged in legitimate market activity undertaken in good

    faith.\90\ Under final Rule 180.1, the plaintiff bears the burden of

    proving the violation by a preponderance of the evidence.\91\

    ---------------------------------------------------------------------------

    \86\ See, e.g., SEC v. U.S. Envtl., Inc., 155 F.3d 107, 111 (2d

    Cir. 1998) (finding allegation of reckless participation in a market

    manipulation sufficient to state a claim of violation of Exchange

    Act section 10(b)).

    \87\ Drexel Burnham Lambert Inc. v. CFTC, 850 F.2d 742, 748 (DC

    Cir. 1988); see also Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d

    1033, 1045 (7th Cir. 1977), cert. denied, 434 U.S. 875 (1977)

    (holding that recklessness under SEC Rule 10b-5 means ``an extreme

    departure from the standards of ordinary care, and which presents a

    danger of misleading buyers or sellers that is either known to the

    defendant or is so obvious that the actor must have been aware of

    it'') (internal quotation marks and citation omitted); SEC v.

    Platforms Wireless Int'l Corp., 617 F.3d 1072, 1093-94 (9th Cir.

    2010) (``scienter [under SEC Rule 10b-5] requires either deliberate

    recklessness or conscious recklessness, and [ ] it includes a

    subjective inquiry turning on the defendant's actual state of

    mind'') (internal quotation marks and citations omitted).

    \88\ See, e.g. Hollinger, v. Titan Capital Corp., 914 F.2d 1564,

    1568-96 (9th Cir. 1990) (en banc), cert. denied, 111 S. Ct. 1621

    (1991).

    \89\ 75 FR at 67659.

    \90\ Consistent with the Supreme Court's interpretation of

    Exchange Act section 10(b) in Ernst & Ernst v. Hochfelder, 425 U.S.

    185, 206 (1976), the Commission finds no indication in CEA section

    6(c)(1) that Congress intended anyone to be made liable for a

    violation of final Rule 180.1 unless he or she acted other than in

    good faith.

    \91\ See, e.g., Herman & Maclean v. Huddleston, 459 U.S. 375,

    387-90 (1983), citing SEC v. C. M. Joiner Leasing Corp., 320 U.S.

    344, 355 (1943).

    ---------------------------------------------------------------------------

    With respect to comments requesting clarification that scienter may

    not be premised on the collective knowledge of an entire company, the

    Commission notes that there is disagreement among the circuits on the

    collective knowledge theory--that is, the courts disagree on whether

    the conduct of one corporate agent can be aggregated with another

    corporate agent's state of mind in holding a corporation liable for

    fraud.\92\ The judicial decisions on the applicability of the

    collective knowledge theory under Exchange Act section 10(b) involve

    only private securities litigation; the Commission is unaware of any

    judicial decision applying the so-called collective knowledge theory

    under Exchange Act section 10(b) where the government is the plaintiff.

    Further, the Supreme Court has not spoken to the issue under Exchange

    Act section 10(b) or any other similar fraud-based prohibition.

    ---------------------------------------------------------------------------

    \92\ Compare, e.g., United States v. Bank of New England, N.A.,

    821 F.2d 844, 856 (1st Cir. 1987) (holding in a corporate criminal

    liability action arising under the Currency Transaction Reporting

    Act, that ``[c]orporations compartmentalize knowledge, subdividing

    the elements of specific duties and operations into smaller

    components. The aggregate of those components constitutes the

    corporation's knowledge of a particular operation * * * [and the]

    corporation cannot plead innocence by asserting that the information

    obtained by several employees was not acquired by any one individual

    who then would have comprehended its full import''); City of Monroe

    Employees Retirement System v. Bridgestone Corp., 387 F.3d 468, 690

    (6th Cir. 2004) (finding that plaintiffs adequately pleaded

    securities fraud claims against a corporate defendant even though

    the complaint failed to allege that the corporate agent whose

    scienter was imputed to the corporation ``played any role in

    drafting, reviewing, or approving'' the allegedly false

    representations or ``that he was, as a matter of practice, or by job

    description, typically involved in the creation of such

    documents''); with Nordstrom Inc. v. Chubb & Son Inc., 54 F. 3d

    1424, 1435 (9th Cir. 1995) (``there is no case law supporting an

    independent `collective scienter' theory,'' i.e., the theory ``that

    a corporation's scienter could be different from that of an

    individual director or officer''); Southland Sec. Corp. v. INSpire

    Ins. Solutions Inc., 365 F.3d 353, 364-65 (5th Cir. 2004) (quoting

    In re Apple Computer Inc., 243 F. Supp. 2d 1012, 1023 (N.D. Cal.

    2002)) (`` `A defendant corporation is deemed to have the requisite

    scienter for fraud only if the individual corporate officer making

    the statement has the requisite level of scienter * * * at the time

    he or she makes the statement' * * * [T]he required state of mind

    must actually exist in the individual making the misrepresentation

    and may not simply be imputed to that individual on general

    principles of agency''), cited with approval in Makor Issues &

    Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 708 (7th Cir. 2008);

    United States v. Sci. Applications Int'l Corp., 626 F.3d 1257, 1274-

    75 (DC Cir. 2010) (holding a ``collective knowledge'' jury

    instruction inconsistent with the scienter requirement under the

    False Claims Act and expressing doubt, in dicta, regarding the use

    of ``collective knowledge'' to establish corporate scienter in non-

    FCA cases).

    ---------------------------------------------------------------------------

    Given that the collective knowledge theory of alleging and proving

    scienter against corporate defendants is permissible in certain

    circuits, and because the Commission finds the policy rationale

    underlying the theory to be in the public interest (i.e., that it

    creates incentives for the corporate entity to create and maintain

    effective internal communications and controls to prevent wrongful and

    harmful conduct), the Commission declines to adopt comments requesting

    that the Commission foreclose the collective knowledge theory in any

    case. Rather, the Commission intends to follow the law of the various

    circuits and, in all cases, consider the totality of the facts and

    circumstances of a particular case before deciding whether enforcement

    action is appropriate and in the public interest.

    G. The Scope of the Phrase ``In Connection With''

    1. Comments

    In response to the NOPR, Better Markets requested the Commission

    interpret the ``in connection with'' language of Proposed Rule 180.1

    broadly to include not only the transaction giving rise to a swap

    agreement, but also all of the continuing performance obligations under

    such agreement.\93\

    ---------------------------------------------------------------------------

    \93\ Better Markets at page 2. Better Markets notes that the SEC

    employed the language in connection with the ``offer, purchase or

    sale'' of any security-based swap, and also targeted a specific

    characteristic of swaps--the ongoing payments or deliveries between

    the parties throughout the life of the security-based swap in

    accordance with their rights and obligations.

    ---------------------------------------------------------------------------

    CME Group states that the Commission should interpret the ``in

    connection with'' standard to require a ``nexus'' between transactions

    (or offers to transact) subject to CFTC jurisdiction and prohibited

    fraudulent or deceptive conduct.\94\ CEF expressed concern that a broad

    interpretation of the phrase ``in connection with'' may result in

    conflicting or duplicative regulation with other agencies, including

    the Federal Energy Regulatory Commission (``FERC''), SEC, Federal Trade

    Commission (``FTC'') and the Public Utility Commission of Texas.\95\

    ---------------------------------------------------------------------------

    \94\ CME Group at pages 9-10.

    \95\ CEF at pages 3-4.

    ---------------------------------------------------------------------------

    Senator Levin believes the Commission should employ its new

    authority under CEA section 6(c) to prevent manipulative and disruptive

    activities even where the impacts may only be felt in other markets--

    including markets regulated by the SEC.\96\ Senator Levin expresses

    concern that, as currently drafted, the proposed rules may not allow

    the CFTC to effectively regulate market activity that is intended to or

    actually does artificially change prices in another market or

    product.\97\

    ---------------------------------------------------------------------------

    \96\ Senator Levin at pages 5-6.

    \97\ Senator Levin at pages 5-6.

    \98\ SEC v. Zandford, 535 U.S. 813 (2002).

    ---------------------------------------------------------------------------

    2. Commission Determination

    Upon careful consideration of the entire rulemaking record, the

    Commission finds it unnecessary to alter the text of final Rule 180.1.

    The Commission interprets the words ``in connection with'' broadly, not

    technically or restrictively. Section 6(c)(1) and final Rule 180.1

    reach all manipulative or deceptive conduct in connection with the

    purchase, sale, solicitation, execution, pendency, or termination of

    any swap, or contract of sale of any commodity in interstate commerce,

    or contract for future delivery on or subject to the rules of any

    registered entity. Accordingly, final Rule 180.1 covers conduct

    including, but not limited to, all of the payment and other obligations

    arising under a swap.

    While broad, the elasticity of the ``in connection with'' language

    is not limitless. In this regard, the Commission finds the Supreme

    Court's decision in Zandford interpreting SEC Rule 10b-5's ``in

    connection with'' language particularly instructive.\98\ In its

    opinion, the Court gave the following example to

    [[Page 41406]]

    highlight the limits of SEC Rule 10b-5 applicability:

    If * * * a broker embezzles cash from a client's account or

    takes advantage of the fiduciary relationship to induce his client

    into a fraudulent real estate transaction, then the fraud would not

    include the requisite connection to a purchase or sale of

    securities. Likewise if the broker told his client he was stealing

    the client's assets, that breach of fiduciary duty might be in

    connection with a sale of securities, but it would not involve a

    deceptive device or fraud.\99\

    ---------------------------------------------------------------------------

    \99\ Id. at 825 n. 4. The holding of Zandford is consistent with

    judicial interpretations of the phrase ``in or in connection with''

    in the anti-fraud provisions of the CEA, particularly section 4b(a),

    which prohibits any person from defrauding another person ``in or in

    connection with'' a commodity futures transaction. For example, in R

    & W Tech. Servs. Ltd., v. CFTC, 205 F.3d 165 (5th Cir. 2000), cert.

    denied, 531 U.S. 817 (2000), the Fifth Circuit, in affirming the

    liability of a defendant for defrauding another person, refused to

    construe ``in or in connection with'' and 4b(a) narrowly. Id. at

    171-74. Rather, the court endorsed the Commission's position that

    fraud in the sale of investment advice will be ``in connection

    with'' the sale of a commodities futures contract ``if the fraud

    relates to'' the risk of trading and the primary purpose of the

    advice is to execute trades. Id. at 172-73. As a general matter, the

    Supreme Court has stated that anti-fraud and anti-manipulation

    provisions of the CEA are to be construed broadly. See, e.g., CFTC

    v. Schor, 478 U.S. 833, 836 (1986) (``The CEA broadly prohibits

    fraudulent and manipulative conduct in connection with commodity

    futures transactions.'').

    The Commission intends to be guided by this and other precedent

    interpreting the words ``in connection with'' in the securities

    context.\100\

    ---------------------------------------------------------------------------

    \100\ Zandford, 535 U.S. 813 (2002); see also Merrill Lynch,

    Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 85 (2006)

    (holding that the ``in connection with'' language of SEC Rule 10b-5

    requires a nexus between fraudulent conduct and a securities

    transaction).

    ---------------------------------------------------------------------------

    As to comments regarding cross-market manipulation, the Commission

    intends to apply final Rule 180.1 to the fullest extent allowed by law

    when determining whether conduct in one market is ``in connection

    with'' an activity or product subject to the jurisdiction of the

    Commission. Further, where the Commission's jurisdiction is not

    exclusive,\101\ the Commission will, to the extent practicable and

    consistent with its longstanding practice, coordinate its enforcement

    efforts with other federal or state law enforcement authorities.

    ---------------------------------------------------------------------------

    \101\ 7 U.S.C. 2(a)(1)(A).

    ---------------------------------------------------------------------------

    H. Penalty, Procedure, Effect on Automated Trading Systems, and a

    Proposal To Define Manipulation

    1. Comments

    With regard to the penalty for violating final Rule 180.1, API and

    NPRA state that if the Commission chooses to promulgate a catch-all

    anti-fraud rule without regard to whether the conduct had a

    manipulative purpose or effect (a proposal that API and NPRA submit

    would exceed the Commission's authority), then the Commission should

    clarify that the enhanced sanctions in section 753 of the Dodd-Frank

    Act apply only to cases of manipulation or attempted manipulation, and

    not to every alleged violation of the rule.\102\ CEF seeks

    clarification that, in a case of a false reporting violation under CEA

    section 6(c)(1)(A), the Commission is not permitted to impose a penalty

    of an amount equal to the greater of $1 million or treble damages

    pursuant to CEA section 6(c)(10)(C)(ii).\103\

    ---------------------------------------------------------------------------

    \102\ API and NPRA at pages 10-11.

    \103\ CEF at page 8.

    ---------------------------------------------------------------------------

    On the subject of implementation, API and NPRA ask that any final

    rule adopt a 180-day effective date to enable the industry to design

    and implement comprehensive compliance programs.\104\ EEI and CEF

    recommend that the CFTC implement its new authority in a cooperative

    manner with FERC and further recommend that it hold a workshop, before

    the final Rule is issued, on a variety of subjects related to

    interpretation and application of the final Rule.\105\ Professor

    Greenberger believes that the Commission correctly states in the NOPR

    that market participants should already have constructed and

    implemented procedures to guard against their employees' and agents'

    attempts at manipulation. As such, Professor Greenberger believes that

    there should not be any additional cost to the existing market

    participants.\106\

    ---------------------------------------------------------------------------

    \104\ API and NPRA at page 27.

    \105\ EEI at pages 2-4; CEF at pages 4-5.

    \106\ Greenberger at page 4.

    ---------------------------------------------------------------------------

    On the issue of use or employment of algorithmic or automated

    trading systems, the PMAA requests that the Commission establish

    standards governing the use of algorithmic trading technology by

    requiring internal controls such as logs and specific notification

    protocols, directed to the trading entity, when significant code

    modification of its algorithm takes place, including interpretation by

    the algorithm of digitized news and social networking sources.\107\

    ---------------------------------------------------------------------------

    \107\ PMAA at pages 1-2.

    ---------------------------------------------------------------------------

    Finally, the Brattle Group economists state that the Commission

    should adopt its proposed definition of manipulation: ``Manipulation is

    engaging in anomalous price-making behavior intended to alter a price

    in order to profit in affected price-taking transactions.'' \108\ The

    Brattle Group economists contend that manipulation thus defined can be

    interpreted as a form of fraud whereby anomalous behavior (non-

    economic, stand-alone transactions for the actor) injects false or

    misleading information into a market and consequently impairs its

    integrity.\109\

    ---------------------------------------------------------------------------

    \108\ Brattle Group economists Comment Letter at page 6.

    \109\ Brattle Group economists at pages 6-7.

    ---------------------------------------------------------------------------

    2. Commission Determination

    With respect to penalties, the Commission will follow CEA section

    6(c)(10)(C)(ii), which states that the Commission may assess ``in any

    case of manipulation or attempted manipulation in violation of [CEA

    section 6(c)] or section 9(a)(2), a civil penalty of not more than an

    amount equal to the greater of--(I) $1,000,000; or (II) triple the

    monetary gain to the person for each such violation.'' CEF's request

    that the penalties for manipulation not apply to violations of CEA

    section 6(c)(1)(A) is declined because such an outcome would conflict

    with the plain language of the statute. False or misleading or

    inaccurate reporting is a type of unlawful manipulation specifically

    prohibited by CEA section 6(c)(1)(A). Accordingly, where section

    6(c)(1)(A) applies, the Commission may assess a penalty of an amount

    equal to the greater of $1 million or treble damages under CEA section

    6(c)(10)(C)(ii) for each such violation.

    The Commission declines to adopt comments recommending that it

    conduct further technical conferences on this rulemaking. The

    Commission has provided notice and opportunity to comment and has met

    with numerous groups to discuss this rulemaking.\110\ Further, as noted

    above, there is extensive case law interpreting SEC Rule 10b-5 upon

    which final Rule 180.1 is modeled.\111\

    ---------------------------------------------------------------------------

    \110\ A list of all external meetings held on Dodd-Frank Act

    section 753 is available at: http://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/index.htm.

    \111\ Similarly, the Commission has ample experience enforcing

    the predecessor provisions of final Rule 180.2.

    ---------------------------------------------------------------------------

    The Commission declines to adopt comments requesting heightened

    supervision of algorithmic and automated trading systems as beyond the

    scope of this rulemaking. Nevertheless, as a general matter, a

    supervisory failure may be one of the facts and circumstances that the

    Commission considers in determining whether a violation of the final

    Rule exists.

    The Commission declines to adopt comments proposing a new

    economics-based definition of manipulation. Instead, as stated above,

    all relevant

    [[Page 41407]]

    facts and circumstances must be considered in determining whether a

    violation of final Rule 180.1 exists.

    V. Discussion of CEA Section 6(c)(3) and Final Rule 180.2

    The Commission proposed Rule 180.2 under its general rulemaking

    authority, CEA section 8a(5) and its statutory authority to prohibit

    manipulation under new CEA section 6(c)(3). Proposed Rule 180.2 mirrors

    the text of new CEA section 6(c)(3), by stating that ``[i]t shall be

    unlawful for any person, directly or indirectly, to manipulate or

    attempt to manipulate the price of any swap, or of any commodity in

    interstate commerce, or for future delivery on or subject to the rules

    of any registered entity.'' In the NOPR, the Commission proposed to

    continue ``interpreting the prohibition on price manipulation and

    attempted price manipulation to encompass every effort to improperly

    influence the price of a swap, commodity, or commodity futures

    contract.'' \112\

    ---------------------------------------------------------------------------

    \112\ 75 FR at 67658.

    ---------------------------------------------------------------------------

    A. Comments

    The CME Group believes that the Commission should employ a bright-

    line test under final Rule 180.2 that distinguishes prohibited

    manipulative conduct from legitimate competitive trading activities. To

    that end, CME Group urges the Commission to clarify what factors or

    types of activity the Commission considers to be ``intended to

    interfere with the legitimate forces of supply and demand.'' \113\ The

    CME Group believes the Commission's statement in the NOPR that ``an

    illegal effect on price can often be conclusively presumed from the

    nature of the conduct in question and other factual circumstances not

    requiring expert economic analysis'' \114\ is tantamount to a ``we-

    know-it-when-we-see-it-approach'' that impermissibly collapses the

    third and fourth elements of the traditional framework for manipulation

    outlined in Cox.\115\

    ---------------------------------------------------------------------------

    \113\ CME Group at page 11. CME Group states that the Commission

    also should clarify how to determine whether a price has been

    affected by illegitimate factors. CME Group at pages 11-12.

    \114\ 75 FR at 67660-61.

    \115\ In the Matter of Cox, [1986-1987 Transfer Binder] Comm.

    Fut. L. Rep. (CCH) P 23,786 at 34,060-61 (CFTC July 15, 1987).

    ---------------------------------------------------------------------------

    COPE and EEI believe that the provisions in proposed Rule 180.1 are

    the same as proposed Rule 180.2 and thus the latter should be

    deleted.\116\ EEI recommends that if the Commission chooses not to

    delete proposed Rule 180.2, it should carve this section out of the

    current rulemaking initiative and issue a separate and more detailed

    NOPR for public comment.\117\

    ---------------------------------------------------------------------------

    \116\ COPE at pages 6-7; EEI at page 6.

    \117\ EEI at page 6.

    ---------------------------------------------------------------------------

    EEI requests that the Commission affirm in regulatory text that the

    scienter requirement for proposed Rule 180.2 is specific intent under

    the Commission's four-prong test.\118\ This four-part test is described

    in subsection B below. Likewise, the Associations believe that the

    Commission should not use CEA section 6(c)(3) as a mechanism to lower

    the specific intent standard traditionally required in manipulation

    cases. Instead, the Commission should issue clarifying guidance that

    conforms to the traditional framework of enforcement, including the

    theory of liability set forth in the Di Placido matter.\119\

    ---------------------------------------------------------------------------

    \118\ EEI at page 7.

    \119\ Associations at page 10 referring to In re Di Placido,

    2008 WL 4831204 (CFTC 2008), affd in pertinent part, Di Placido v.

    CFTC, 364 Fed Appx. 657, 2009 WL 3326624 (2d Cir. 2009), cert.

    denied, 130 S. Ct. 1883 (Mar. 22, 2010).

    ---------------------------------------------------------------------------

    With respect to the scope of application of proposed Rule 180.2,

    CMC recommends the Commission clarify that CEA section 6(c)(3) does not

    confer any additional enforcement authority beyond the holding in the

    Di Placido matter.\120\

    ---------------------------------------------------------------------------

    \120\ CMC at pages 2-3.

    ---------------------------------------------------------------------------

    CMC and MFA recommend that the Commission make clear that proposed

    Rule 180.2 does not create a presumption that a price is artificial

    merely because one or more isolated transactions are deemed uneconomic

    without proof of a specific intent to move prices.\121\ The

    Associations and MFA believe that the Commission's statement in the

    NOPR ``that prices [are] affected by a factor not consistent with

    normal forces of supply and demand will often follow inescapably from

    proof of the actions of the alleged manipulator'' is an overly

    aggressive reading of judicial precedent like Di Placido. \122\ MFA

    believes that the Commission should not create a ``conclusive

    presumption'' that a price is artificial without proof of specific

    intent to move prices.\123\

    ---------------------------------------------------------------------------

    \121\ CMC at pages 2-3; MFA at pages 7-8.

    \122\ Associations at page 11; MFA at pages 7-8.

    \123\ MFA at pages 7-8.

    ---------------------------------------------------------------------------

    Professor Greenberger states that although the Commission has

    already interpreted the ``prohibition on price manipulation and

    attempted price manipulation to encompass every effort to influence the

    price of a swap, commodity, or commodity futures contract that is

    intended to interfere with the legitimate forces of supply and demand

    in the marketplace,'' it is important to reaffirm the relevance of that

    legal interpretation.\124\ Professor Greenberger believes that

    Commission precedent supports the position that illegal effect on price

    can often be conclusively presumed from the nature of the conduct in

    question and other factual circumstances not requiring expert economic

    analysis.\125\

    ---------------------------------------------------------------------------

    \124\ Professor Greenberger at page 4.

    \125\ Professor Greenberger at page 4.

    ---------------------------------------------------------------------------

    ATA believes that the Commission should consider whether its

    complete reliance on past precedent in interpreting manipulation under

    proposed Rule 180.2 needlessly narrows the potential reach of the

    amended anti-manipulation provision of section 6(c)(3), anchoring its

    interpretation to a past standard that has proven remarkably difficult

    to enforce.\126\ ATA notes that section 6(c)(3) as amended is broader

    than both its prior version and section 9(a)(2) by its inclusion of the

    word ``indirectly,'' making it unlawful to indirectly manipulate or

    attempt to manipulate prices.\127\

    ---------------------------------------------------------------------------

    \126\ ATA at page 1.

    \127\ ATA at page 4.

    ---------------------------------------------------------------------------

    B. Commission Determination

    In response to the comments received regarding this matter, the

    Commission reiterates that, in applying final Rule 180.2, it will be

    guided by the traditional four-part test for manipulation that has

    developed in case law arising under 6(c) and 9(a)(2): (1) That the

    accused had the ability to influence market prices; (2) that the

    accused specifically intended to create or effect a price or price

    trend that does not reflect legitimate forces of supply and demand;

    \128\ (3) that artificial prices existed; and (4) that the accused

    caused the artificial prices.\129\

    ---------------------------------------------------------------------------

    \128\ In re Indiana Farm Bureau Cooperative Assn., Inc., [1982-

    1984 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 21,796 (CFTC Dec.

    17, 1982), citing Volkart Bros., Inc. v. Freeman, 311 F.2d 52 (5th

    Cir. 1962); In re Hohenberg Bros. Co., [1975-1977 Transfer Binder]

    Comm. Fut. L. Rep. (CCH) ] 20,271 (CFTC Feb. 18, 1977).

    \129\ In re Cox [1986-1987 Transfer Binder], Comm. Fut. L. Rep.

    (CCH) ] 23,786, 1987 CFTC LEXIS 325, at *9, 1987 WL 106879, at *3

    (CFTC July 15, 1987). In cases of attempted manipulation under

    section 9(a)(2), the CFTC is required to show: (1) An intent to

    affect the market price; and (2) some overt act in furtherance of

    that intent. See In re Hohenberg Bros. Co., ] 20,271 at 21,477.

    ---------------------------------------------------------------------------

    The Commission reaffirms the requirement under final Rule 180.2

    that a person must act with the requisite specific intent. In other

    words, recklessness will not suffice under final Rule 180.2 as it will

    under final Rule 180.1. The Commission finds this level of intent

    necessary to ensure that legitimate conduct is not captured by final

    Rule 180.2, which covers non-fraud based manipulation. Given the

    [[Page 41408]]

    differences in scope of application between the final Rules, the

    Commission declines requests to consolidate them.

    The Commission declines requests to limit the application of final

    Rule 180.2 to the circumstances set forth in the commenters' analysis

    of particular cases, including the Di Placido matter. Likewise, the

    Commission's statement in the NOPR that an artificial price may be

    ``conclusively presumed'' under certain facts and circumstances does

    not mean that an artificial price may be conclusively presumed in all

    cases. For example, where, as in Di Placido, a trader violates bids and

    offers in order to influence the volume-weighted average settlement

    price, an artificial price will be a ``reasonably probable

    consequence'' of the trader's intentional misconduct. Moreover, the

    Commission in the proposed Rule did not say that an artificial price

    will be conclusively presumed in the absence of any evidence, only that

    ``extensive economic analysis may not be necessary'' to prove that an

    artificial price existed.\130\ To be clear, in some cases the

    conclusion that prices were affected by a factor not consistent with

    normal forces of supply and demand will require economic analysis, but

    in other cases, such a showing may, as the Commission stated in the

    proposed Rule, ``follow inescapably from proof of the actions of the

    alleged manipulator.'' \131\ This is unsurprising given the fact and

    circumstance specific nature of manipulation cases. Accordingly, the

    Commission is not, as some commenters state, collapsing the third and

    fourth elements of the traditional four-part test for manipulation

    under section 6(c)(3) and final Rule 180.2.

    ---------------------------------------------------------------------------

    \130\ 75 FR at 67660 (emphasis added).

    \131\ 75 FR at 67660.

    ---------------------------------------------------------------------------

    The Commission interprets the terms ``directly or indirectly'' as

    describing the level of involvement necessary to establish a violation

    of final Rule 180.2. In this context, the Commission interprets

    ``indirectly'' to include the circumstance where a person uses a third

    party (e.g., an executing broker) to execute trades designed to

    manipulate, so it will be no defense that the person did not himself

    execute the transaction.

    Notwithstanding the fact that final Rule 180.2 mirrors the text of

    CEA section 6(c)(3), the Commission deems it appropriate and in the

    public interest to promulgate this rule and, in so doing, provide the

    above clarifications to the manner in which the Commission interprets

    and intends to apply final Rule 180.2.

    V. Administrative Compliance and Cost-Benefit Considerations

    CEA section 15(a) \132\ requires the Commission to consider the

    costs and benefits of its actions before promulgating a regulation

    under the CEA. By its terms, CEA section 15(a) does not require the

    Commission to quantify the costs and benefits of a rule or to determine

    whether the benefits of the regulation outweigh its costs; rather, it

    requires the Commission to ``consider'' the costs and benefits of its

    actions. CEA section 15(a) further specifies that the costs and

    benefits shall be evaluated in light of five broad areas of market and

    public concern: (1) Protection of market participants and the public;

    (2) efficiency, competitiveness and financial integrity of futures

    markets; (3) price discovery; (4) sound risk management practices; and

    (5) other public interest considerations. The Commission may in its

    discretion give greater weight to any one of the five enumerated areas

    and could in its discretion determine that, notwithstanding its costs,

    a particular rule is necessary or appropriate to protect the public

    interest or to effectuate any of the provisions or accomplish any of

    the purposes of the CEA.

    ---------------------------------------------------------------------------

    \132\ 7 U.S.C. 19(a).

    ---------------------------------------------------------------------------

    In the NOPR, the Commission stated that the proposed rules would

    enhance the authority of the Commission to ensure fair and equitable

    markets, and that market participants and the public will substantially

    benefit from such enhanced prevention and deterrence of manipulation.

    With respect to costs, the Commission also stated that participants in

    the markets should already have policies and procedures in place to

    ensure that their employees, affiliates and agents will refrain from

    attempting to manipulate the markets. The Commission invited public

    comment on its cost-benefit considerations.\133\ Below, we summarize

    and respond to those comments.\134\ Both in the response to comments

    and in the preamble, we address the areas of market and public concern

    for consideration of costs and benefits under CEA section 15(a).

    ---------------------------------------------------------------------------

    \133\ 75 FR at 67661.

    \134\ See note 2 for access to public comment file.

    ---------------------------------------------------------------------------

    API and NPRA commented that the potentially significant compliance

    costs and legal uncertainty must be weighed against the limited

    benefits of the proposed rules. Specifically, API and NPRA believe that

    it is problematic to expand the scope of the Commission's enforcement

    authority to cover routine cash market transactions in all areas of the

    economy, as it would potentially create inconsistencies with existing

    statutory and common law standards and would place a tremendous burden

    on the Commission's resources.\135\ Further, API and NPRA comment that

    the risk of inconsistent standards with federal and state enforcement

    authorities may exacerbate market participants' regulatory and

    compliance risk and burden.\136\ API and NPRA also believe that a

    recklessness standard under Section 753 would increase the costs of

    complying with a market manipulation rule and deter market participants

    from engaging in legitimate business activities and disclosing relevant

    information that helps markets to function more efficiently as price

    discovery venues.\137\ API and NPRA contend that where market

    participants seek to comply with an omissions rule by disclosing more

    information, companies will have an incentive to exercise great caution

    to ensure that no affirmative statement may be subjectively considered

    misleading through any omission.\138\

    ---------------------------------------------------------------------------

    \135\ API and NPRA at pages 4 and 8.

    \136\ API and NPRA at page 8.

    \137\ API and NPRA at pages 12-17.

    \138\ API and NPRA at page 22.

    ---------------------------------------------------------------------------

    MFA is concerned that ambiguity with respect to legal standards

    would increase transaction costs and chill legitimate trading

    practices, in turn decreasing market depth and liquidity.\139\ The

    Associations state that no new duties of disclosure, inquiry, or

    diligence should be imposed between two sophisticated parties to a

    bilateral transaction. Any such new duties may discourage legitimate

    trading activities, increase transaction costs, and, as a result,

    reduce liquidity and market depth.\140\ CME and Argus make similar

    comments as to the potential effects on markets as a whole, but do not

    express their concerns in terms of costs. The CME comments that the

    Commission must provide greater clarity as to the scope of prohibited

    conduct to maintain and promote fair and efficient markets and to

    protect market liquidity, price discovery, and the risk management

    functions of futures markets.\141\ Argus states that absent

    clarification from the Commission, the proposed rules may unnecessarily

    chill the voluntary submission of transaction related data by market

    participants to compilers of price indices which, in turn, hinders the

    Dodd-Frank Act's goal of market transparency.\142\ CEF comments that

    [[Page 41409]]

    market participants will face substantially more uncertainty with

    respect to their activities in energy markets and significant costs in

    attempting to comply with multiple regulatory regimes, thereby likely

    reducing participation in energy markets.\143\ CEF also comments that

    jurisdictional overlap of agencies will result in increased litigation

    costs, depletion of scarce resources, and uncertainty for both the

    Commission and market participants.\144\ CEF states the false reporting

    provision will place a heavy burden on all market participants as they

    attempt to comply with the new reporting requirements proposed by the

    Commission pursuant to the Act.\145\

    ---------------------------------------------------------------------------

    \139\ MFA at pages 3-4.

    \140\ Associations at pages 1 and 4.

    \141\ CME at page 3.

    \142\ Argus at page 1.

    \143\ CEF at pages 2-3.

    \144\ CEF at page 4.

    \145\ CEF at page 7.

    ---------------------------------------------------------------------------

    In contrast, Barnard believes the implementation costs of the

    proposed rules should be minimal.\146\ Professor Greenberger believes

    that the Commission correctly states that market participants should

    already have constructed and implemented procedures to guard against

    their employees' and agents' attempts at market manipulation. As such,

    Professor Greenberger believes that there should not be any additional

    costs to existing market participants.\147\

    ---------------------------------------------------------------------------

    \146\ Barnard at page 2.

    \147\ Professor Greenberger at page 4.

    ---------------------------------------------------------------------------

    The Commission has carefully considered the concerns expressed by

    some of the commenters that the final Rules could substantially

    increase costs on market participants, reduce market liquidity or chill

    legitimate market activity. However, commenters provide no

    quantification of the potential costs or reliable data as a basis for

    conclusions that substantial costs will be incurred as a result of the

    final Rules. Furthermore, commenters have not shown how such rules have

    negatively impacted comparable markets that trade comparable

    instruments and operate under comparable anti-manipulation rules.

    Specifically, regarding the comments received by API, NPRA, MFA,

    CME, Argus, and the Associations as to how the new rules may directly

    increase transaction costs, reduce market liquidity and depth, and

    hinder risk management functions of markets subject to the Commission's

    jurisdiction, the Commission notes that final Rule 180.1 is modeled on

    SEC Rule 10b-5. Many derivatives products in securities markets are

    traded on national securities exchanges under SEC regulation (e.g.,

    equity options, stock index options, and stock index exchange-traded

    funds (``ETFs'')) and are therefore subject to the SEC anti-

    manipulation rule.

    Many of these SEC-regulated derivatives products exhibit high and

    growing volumes, narrow bid-ask spreads, and high levels of market

    depth. SEC-regulated stock index ETFs and stock-index options are

    economically similar to CFTC-regulated stock index futures and options

    on those futures and, like these CFTC-regulated derivatives, serve

    primarily as risk-shifting instruments rather than instruments for

    capital formation. Any argument that the SEC's anti-fraud and anti-

    manipulation regime has negatively affected the growth of SEC-regulated

    derivatives lacks a basis in fact and contradicts the generally

    accepted purpose of the SEC's anti-fraud and anti-manipulation rules,

    which is to protect investors and to promote market integrity.\148\

    Moreover, the FERC also promulgated a rule modeled on SEC Rule 10b-5

    for FERC-jurisdictional markets in natural gas and electricity

    following the enactment of the Energy Policy Act of 2005. The FTC

    promulgated a comparable prohibition for petroleum markets. In the

    absence of any facts that anti-fraud and anti-manipulation rules

    negatively affect markets, the Commission does not find such assertions

    persuasive.

    ---------------------------------------------------------------------------

    \148\ See, e.g., Chemical Bank v. Arthur Andersen & Co., 726

    F.2d 930, 943 (2d Cir. 1984) (``The purpose of Sec. 10(b) and Rule

    10b-5 is to protect persons who are deceived in securities

    transactions--to make sure that buyers of securities get what they

    think they are getting * * *.'') (Friendly, J.); Laird v. Integrated

    Res., 897 F.2d 826, 831 at n.10 (5th Cir. 1990), quoting 3 Fletcher

    Cyclopedia of Corporations, section 900.3 (perm. ed. 1986) (``The

    general purpose and intent of the broad anti-fraud provisions of

    Section 10(b) and Rule 10b-5 is to protect investors, to prevent

    inequitable and unfair practices and to insure fairness in

    securities transactions generally * * *'').

    ---------------------------------------------------------------------------

    As to the concerns of API and NPRA regarding increased costs from

    the Commission's purported expansion of its authority to cover a

    plethora of routine cash market transactions in all areas of the

    economy, with respect to the scope of final Rule 180.1, as discussed

    above, the Commission intends to exercise its authority under 6(c)(1)

    to cover transactions related to the futures or swaps markets, or

    prices of commodities in interstate commerce, or where the fraud or

    manipulation has the potential to affect cash commodities, futures, or

    swaps markets or participants in these markets. Thus, concerns about

    purported increased costs are misplaced in that they rest on an

    incorrect assumption about the scope of the Commission's expanded

    authority.

    In response to comments from CEF, the Commission re-iterates that

    the final Rules do not contain any requirement to create, retain,

    submit, or disclose any information. The final Rules impose no

    recordkeeping or related data retention or disclosure requirements on

    any person, including small businesses. Given that the final Rules

    impose no affirmative duties, it is unlikely that the final Rules will

    impose any additional ongoing costs beyond the existing costs

    associated with ensuring that behavior and statements are not

    fraudulent or manipulative. In that regard, the Commission believes

    that it will not be necessary for firms that currently have adequate

    compliance programs to hire additional staff or significantly upgrade

    their systems to comply with the new Rules. Firms may incur some one-

    time costs such as costs associated with training traders and staff in

    the new Rules.

    The Commission believes the comments from API, NPRA, and CEF

    regarding increased costs pertaining to compliance, litigation, and

    uncertainty with respect to inconsistent standards with other

    regulatory agencies are misplaced. To the contrary, the Commission

    believes that market participants and the public will benefit from

    enhanced regulatory certainty that will arise from the Commission's

    adoption of an anti-manipulation rule that is more harmonized with

    existing anti-manipulation rules of the SEC, FERC, and FTC.

    In the NOPR, the Commission stated, and re-iterates here, that with

    respect to benefits, the proposed rules would enhance the authority of

    the Commission to ensure fair and equitable markets. The Commission

    stated, inter alia, that market participants and the public will

    benefit substantially from enhanced prevention and deterrence of

    manipulation. In light of public considerations under CEA section 15(a)

    in promulgating this rule, the Commission concludes that market

    participants and the public will benefit substantially from increased

    protection through the prevention and deterrence of fraud and

    manipulation. The final Rules will help ensure the efficiency,

    competitiveness, and financial integrity of derivatives markets.

    Markets free from fraud and manipulation function better as venues for

    price discovery and risk management.

    A. Paperwork Reduction Act

    As discussed above, the provisions of Commission Regulations Part

    180 would not result in new recordkeeping

    [[Page 41410]]

    requirements within the meaning of the Paperwork Reduction Act of 1995.

    B. Regulatory Flexibility Act

    The Regulatory Flexibility Act \149\ requires that agencies

    consider whether the rules they propose will have a significant

    economic impact on a substantial number of small entities and, if so,

    provide a regulatory flexibility analysis respecting such impact.\150\

    The final Rules will not have a significant economic impact on a

    substantial number of small entities. As explained above, legitimate

    market participants should already have procedures in place to prevent

    their employees and agents from manipulating the markets. The Chairman,

    on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.

    605(b), that the final Rules will not have a significant impact on a

    substantial number of small entities.

    ---------------------------------------------------------------------------

    \149\ 5 U.S.C. 601.

    \150\ Id.

    ---------------------------------------------------------------------------

    C. Effective Date

    API and NPRA ask the Commission to adopt a 180-day delay in the

    effective date of the final Rules to enable the industry to design and

    implement comprehensive compliance programs.\151\ The Commission

    declines this request. A 180-day delayed effective date would unduly

    limit the Agency's responsibility to protect market participants and

    promote the integrity of the markets. Rather, consistent with Dodd-

    Frank Act section 753(d) and Administrative Procedure Act section

    553(d), 5 U.S.C. 553(d), the final Rules will take effect 30 days after

    they are published in the Federal Register.

    ---------------------------------------------------------------------------

    \151\ API and NPRA at page 27.

    ---------------------------------------------------------------------------

    List of Subjects in 17 CFR Part 180

    Commodity futures.

    Authority and Issuance

    For the reasons stated in the preamble, the Commodity Futures

    Trading Commission adds a new 17 CFR Part 180 as set forth below:

    PART 180--PROHIBITION AGAINST MANIPULATION

    Sec.

    180.1 Prohibition on the employment, or attempted employment, of

    manipulative and deceptive devices.

    180.2 Prohibition on price manipulation.

    Authority: 7 U.S.C. 6c(a), 9, 12(a)(5) and 15, as amended by

    Title VII of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010); 5 U.S.C. 552

    and 552(b), unless otherwise noted.

    Sec. 180.1 Prohibition on the employment, or attempted employment, of

    manipulative and deceptive devices.

    (a) It shall be unlawful for any person, directly or indirectly, in

    connection with any swap, or contract of sale of any commodity in

    interstate commerce, or contract for future delivery on or subject to

    the rules of any registered entity, to intentionally or recklessly:

    (1) Use or employ, or attempt to use or employ, any manipulative

    device, scheme, or artifice to defraud;

    (2) Make, or attempt to make, any untrue or misleading statement of

    a material fact or to omit to state a material fact necessary in order

    to make the statements made not untrue or misleading;

    (3) Engage, or attempt to engage, in any act, practice, or course

    of business, which operates or would operate as a fraud or deceit upon

    any person; or,

    (4) Deliver or cause to be delivered, or attempt to deliver or

    cause to be delivered, for transmission through the mails or interstate

    commerce, by any means of communication whatsoever, a false or

    misleading or inaccurate report concerning crop or market information

    or conditions that affect or tend to affect the price of any commodity

    in interstate commerce, knowing, or acting in reckless disregard of the

    fact that such report is false, misleading or inaccurate.

    Notwithstanding the foregoing, no violation of this subsection shall

    exist where the person mistakenly transmits, in good faith, false or

    misleading or inaccurate information to a price reporting service.

    (b) Nothing in this section shall be construed to require any

    person to disclose to another person nonpublic information that may be

    material to the market price, rate, or level of the commodity

    transaction, except as necessary to make any statement made to the

    other person in or in connection with the transaction not misleading in

    any material respect.

    (c) Nothing in this section shall affect, or be construed to

    affect, the applicability of Commodity Exchange Act section 9(a)(2).

    Sec. 180.2 Prohibition on price manipulation.

    It shall be unlawful for any person, directly or indirectly, to

    manipulate or attempt to manipulate the price of any swap, or of any

    commodity in interstate commerce, or for future delivery on or subject

    to the rules of any registered entity.

    Issued in Washington, DC, on July 7, 2011, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Prohibition on the Employment, or Attempted Employment,

    of Manipulative and Deceptive Devices; Prohibition on Price

    Manipulation--Commission Voting Summary and Statements of Commissioners

    Note: The following appendices will not appear in the Code of

    Federal Regulations.

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn,

    Sommers, O'Malia and Chilton voted in the affirmative; no

    Commissioner voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final rulemaking to enhance the Commission's

    ability to protect against manipulation. Effective regulation

    requires an effective enforcement program. The Dodd-Frank Act

    enhances the Commission's enforcement authorities in the futures

    markets and expands them to the swaps markets. This rule implements

    new Dodd-Frank authorities to police against fraud and fraud-based

    manipulative schemes, based upon similar authority that the

    Securities and Exchange Commission, Federal Energy Regulatory

    Commission and Federal Trade Commission have for securities and

    certain energy commodities.

    In the past, the CFTC had the ability to prosecute manipulation,

    but to prevail, it had to prove the specific intent of the accused

    to create an artificial price. Under the new law and one of the

    rules before us today, the Commission's anti-manipulation reach is

    extended to prohibit the reckless use of fraud-based manipulative

    schemes. This closes a significant gap, as it will broaden the types

    of cases we can pursue and improve the chances of prevailing over

    wrongdoers.

    The rule also implements the Dodd-Frank Act's price-based

    manipulation authority to police against corners and squeezes. These

    new authorities expand the CFTC's arsenal of enforcement tools and

    strengthen the Commission's ability to effectively deal with threats

    to market integrity. We will use these tools to be a more effective

    cop on the beat, to promote market integrity and to protect market

    participants.

    I thank Senator Maria Cantwell for her work to secure this

    important authority for the CFTC. As Senator Cantwell explained in

    proposing that this authority be included in the Commodity Exchange

    Act, ``It is a strong and clear legal standard that allows

    regulators to successfully go after reckless and manipulative

    behavior.''

    Attachment A

    Parties filing comments:

    Air Transport Association (ATA)

    [[Page 41411]]

    American Bar Association, Derivatives and Futures Law Committee,

    Business Law Section (ABA Derivatives Committee)

    American Petroleum Institute (API) and National Petrochemical and

    Refiners Association (NPRA)

    Argus Media, Inc. (Argus)

    Barnard, Chris (Barnard)

    Better Markets

    Brattle Group Economists (Brattle Group)

    Carini, Peter*

    CME Group, Inc. (CME Group)

    Coalition of Physical Energy Companies (COPE)

    Commodity Markets Council (CMC)

    Council of Institutional Investors (Council)

    Edison Electric Institute (EEI)

    Freddie Mac

    Futures Industry Association, International Swaps and Derivatives

    Association, Inc. (ISDA) and Securities Industry and Financial

    Markets Association (SIFMA) (together, the Associations)

    Managed Funds Association (MFA)

    Pen Fern Oil Co., Inc.*

    Petroleum Marketers Association of America (PMAA)

    Platts

    Scullin Oil Co.*

    Townsend, Clarence (Townsend)

    U.S. Senator Carl Levin (Senator Levin)

    University of Maryland School of Law, Professor Michael Greenberger

    (Professor Greenberger)

    Weir, Bix

    West Virginia Oil Marketers & Grocers Association (OMEGA)*

    Working Group of Commercial Energy Firms (CEF)

    Zwack, Joseph

    * Denotes commenters filing identical comments which were

    consolidated.

    [FR Doc. 2011-17549 Filed 7-13-11; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: July 14, 2011



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