Public Statements & Remarks

Dissenting Statement of Commissioner Caroline D. Pham on Misappropriation Theory in Derivatives Markets

September 27, 2023

I respectfully dissent from the consent order in CFTC v. Xie,[1] because it has a material omission of the applicable legal precedent.  The consent order inexplicably omits the only court opinion on the misappropriation theory of liability for this violation under section 6(c)(1) of the Commodity Exchange Act (CEA) and CFTC Rule 180.1.  I believe that it is most appropriate to allege “misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information,” and not use the term “material non-public information,” which is a term of art under U.S. securities laws and regulations.

The sole court opinion and order on this issue, CFTC v. EOX Holdings,[2] denies the CFTC’s motion for summary judgment, among other things, and sets forth the test to prove liability under section 6(c)(1)[3] of the CEA and Rule 180.1[4] for misappropriation of confidential information:

Thus, to succeed on either of its two theories of liability for Count I, [the CFTC] must establish that [Defendant] (1) misappropriated confidential information in breach of a pre-existing duty of trust and confidence to the source of the information; (2) intentionally or recklessly, i.e., with scienter; (3) in connection with a contract for sale or purchase of a commodity in interstate commerce; (4) for personal benefit.[5]

I agree with the court’s holding and note that it does not reference “material non-public information” as part of the standard, despite the court having discussed the Commission’s rulemaking preamble for Rule 180.1[6] and the analogous securities case law, including U.S. v. O’Hagan.[7]

The court’s test unambiguously sets forth a legal standard for the application of the misappropriation theory with respect to confidential information and the special characteristics of the derivatives markets, where end users necessarily trade on the basis of their own proprietary information in order to hedge their risks.

And, the court’s test corrects the Commission’s misuse of the term “material nonpublic [sic] information” in its 2011 rulemaking by replacing it with “confidential information in breach of a pre-existing duty of trust and confidence to the source of the information.”  Unfortunately, the Commission and staff, by ignoring the court’s opinion, continue to perpetuate this error by not using the correct legal standard. 

This legal standard also avoids confusion.  For our registered entities and registrants that are public companies and must comply with SEC rules for material non-public information and policies and procedures to prevent insider trading in the securities markets, it would be much simpler to not muddy the waters with two different definitions and concepts for the same term.[8]

Perhaps the Commission and staff, in years past, did not truly appreciate or were all too eager to sweep aside the fundamental differences between the securities and derivatives markets, or were not aware of the definition of “material non-public information” under SEC rules.[9] Clearly, the Commission and staff now no longer take care to be precise in alleging the misappropriation theory, as they once did, and are continuing to take the shortcut of importing non-CFTC terms of art that are inapposite.[10]

But it is never too late to learn and improve how we do things, and that is why I must respectfully dissent.

[1] CFTC v. Xie, No. 23-cv-1947 (N.D. Ill. filed Mar. 28, 2022).

[2] CFTC v. EOX Holdings L.L.C., No. H-19-2901, 2021 WL 4482145 (S.D. Tex., Sept. 30, 2021).

[3] U.S.C. § 9(1).

[4] 17 C.F.R. § 180.1.

[5] EOX Holdings, 2021 WL 4482145 at *22.

[6] Id. at *20 (discussing Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices and Prohibition on Price Manipulation, 76 Fed. Reg. 41,398, 41,399-400 (July 14, 2011)).

[7] United States v. O’Hagan, 117 S. Ct. 2199, 2207 (1997).

[8] See Covington, CFTC Enforcement Outlook: Insider Trading (Oct. 12, 2016), available at

[9] In its 2011 rulemaking, the Commission stated: “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.” 76 Fed. Reg. at 41,399. See FIA Market Voice, Opinion—Why words matter in CFTC enforcement of “insider trading”, Neal Kumar (May 2, 2019), available at and New York Law Journal, CFTC Enters the Insider Trading Enforcement Arena, David Meister and Chad E. Silverman (Feb. 8, 2016), available at CFTC Enters the Insider Trading Enforcement Arena | New York Law Journal.

[10] See Sidley Austin LLP, The CFTC Asserts Its Broader Fraud Jurisdiction and Steps Into The World of Insider Trading (Without Actually Calling It That), Geoffrey F. Aronow and Michael S. Sackheim, (Dec. 29, 2015), available at