Tag: Commodity Futures Trading Commission

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CFTC Proposes to Permit Private Rights of Action Against RTOs and ISOs and Persons Transacting Thereon
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Raindrops Keep Falling On My Head: What the CFTC’s Preliminary Report on the Swap Dealer Definition Might Mean for Energy Companies
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CFTC and FERC Begin Formal Data Sharing

CFTC Proposes to Permit Private Rights of Action Against RTOs and ISOs and Persons Transacting Thereon

By Lawrence Patent

The Commodity Futures Trading Commission (CFTC) has proposed to amend its previous Order exempting specified electric energy transactions from certain provisions of the Commodity Exchange Act (CEA) and CFTC regulations and to permit a private right of action against regional transmission organizations (RTOs) and independent system operators (ISOs) and persons transacting thereon for alleged fraud and manipulation.  81 Fed. Reg. 30245 (May 16, 2016).  The CFTC stated that it did not intend in the original RTO/ISO Order, issued in 2013 (78 Fed. Reg. 19880 (April 2, 2013)), to grant exemption from the private right of action provided in CEA Section 22, but the Fifth Circuit held that this was the effect of the RTO/ISO Order in Aspire Commodities, L.P. v. GDF Suez Energy N.Am., Inc., No. 15-20125, 2016 WL 758689 (5th Cir. Feb. 25, 2016).  Therefore, were the CFTC to adopt the amendment to the RTO/ISO Order, it would in effect be overruling Aspire.  The types of transactions covered by the RTO/ISO Order include financial transmission rights, energy transactions, forward capacity transactions, and reserve or regulation transactions, and the RTO/ISO Order applies to any person or class of persons offering, entering into, rendering advice, or rendering other services with respect to these transactions.

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Raindrops Keep Falling On My Head: What the CFTC’s Preliminary Report on the Swap Dealer Definition Might Mean for Energy Companies

The Commodity Futures Trading Commission (“CFTC,” or the “Commission”) has begun a process to assess the de minimis exception to the Commodity Exchange Act’s swap dealer definition in connection with the end of the definition’s phase-in period in December 2017. At that time the swap dealer de minimis threshold will automatically fall from $8 billion to $3 billion, unless the Commission specifies a different de minimis threshold.

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CFTC and FERC Begin Formal Data Sharing

On March 5, 2014, the Commodity Futures Trading Commission (CFTC) and Federal Energy Regulatory Commission (FERC) announced that they had shared data for the first time under an information sharing Memorandum of Understanding (MOU) that was signed by the two agencies at the beginning of this year.  The purpose of the MOU is to minimize duplicative information requests when the agencies are conducting market surveillance or investigating possible manipulation, fraud or market abuse.  Congress directed the agencies to enter into the MOU as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The data that is subject to sharing under the MOU relates to information about market participants as well as entities regulated by either agency.  Accordingly, FERC may share data concerning Regional Transmission Organizations (RTOs), Independent System Operators (ISOs), and the independent market monitor of RTOs and ISOs, which is the North American Electric Reliability Corporation (NERC).  The data subject to sharing also includes information about interstate pipelines and storage facilities, which are regulated by FERC, and designated contract markets, swap execution facilities, derivatives clearing organizations and swap data repositories, which are regulated by the CFTC.  Any data shared by the agencies remains confidential unless it is used in an enforcement proceeding.

The agencies also announced the formation of a staff level Interagency Surveillance and Data Analytics Working Group to coordinate information sharing between the agencies and focus on data security, data sharing infrastructure, and the use of analytical tools for regulatory purposes. 

Dodd-Frank mandated a second MOU between the agencies, which also was signed at the beginning of this year, that is intended to resolve conflicts concerning potential overlapping jurisdiction and avoiding conflicting or duplicative regulation.  That MOU addresses circumstances where an entity seeks, or an agency considers sua sponte, an authorization or exemption to engage in activities that the agency thinks may also come within the other agency’s jurisdiction.  This MOU has yet to be invoked.  The second MOU specifically states that it “does not expand, alter or limit the . . . [a]gencies’ respective authorities pursuant to applicable statutes and regulations.”  It therefore remains to be seen whether the agencies will cooperate and coordinate with respect to enforcement matters, or whether we will instead see the prospect of another Amaranth case with multiple actions brought by both agencies.

The agencies have taken a long time to get to this point.  Dodd-Frank provided that the MOUs should be entered into by January 2011, and they were not actually entered into until three years later.  In the interim, the CFTC gave priority to the promulgation of the dozens of regulations that it was also required to adopt under Dodd-Frank.  In addition, last April the CFTC issued Orders exempting from the Commodity Exchange Act (1) certain electric operations transactions entered into by certain government and cooperatively-owned electric utility companies, and (2) certain transactions entered into by ISOs and RTOs that are authorized by a tariff or protocol approved by FERC or the Public Utility Commission of Texas.

The implementation of the information sharing MOU was carried out while each agency is being lead by an Acting Chairman.  Hopefully, the sharing of information under the MOU signals an era of greater cooperation and coordination between FERC and the CFTC than has sometimes been the case in the past.  It will be particularly important to observe this relationship as each agency gets new permanent leadership and the Dodd-Frank regulatory structure is developed.  It is a further reminder that, even though the jurisdictional issues among international regulators arising from cross-border swap transactions have grabbed most of the market’s attention, there are jurisdictional issues among U.S. regulators that have yet to be resolved.

 

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