Federal Register, Volume 74, Number 76, April 22, 2009, Pages 18285-18448 Page: 18,306
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Federal Register/Vol. 74, No. 76/Wednesday, April 22, 2009/Proposed Rules
The Commission believes additional
public comment on the revised
proposed Rule will assist in evaluating
the desirability and contours of any
final rule. The Commission requests that
comments focus on changes between the
initially proposed Rule and the revised
proposed Rule. The Commission also
invites written responses to, and
comments on, the questions and
alternative rule language posed in
Section IV.I. Because the public has
already had the opportunity to comment
on many of the concepts contained in
this revised proposed Rule-through
both written comments and workshop
presentations and participation-the
Commission believes that a 30-day
comment period is appropriate, and
requests for extension of the comment
period are unlikely to be granted.
II. The Rulemaking Proceeding
The rulemaking proceeding began
with the publication of an ANPR on
May 7, 2008.12 In the ANPR, the
Commission solicited comments on
whether it should publish a rule under
Section 811, and, if so, the appropriate
scope and content of such a rule.13 In
response to the ANPR, the Commission
received 155 comments from interested
parties.14 Commenters expressed
differing views regarding the
desirability of, and appropriate legal
basis for, any such rule. Commenters
also proposed a variety of models upon
which to base a market manipulation
rule, including those used by other
federal agencies, such as the Securities
and Exchange Commission ("SEC"),15
the Federal Energy Regulatory
Commission ("FERC"),16 and the
Commodity Futures Trading
Commission reads all parts of both sections to cover
all three types of products: crude oil, gasoline, and
petroleum distillates. See 73 FR at 25621 n.59; 73
FR at 48320 n.40.
12 73 FR 25614. Rulemaking documents can be
found at (http://www.ftc.gov/ftc/oilgas/rules.htm).
13 73 FR at 25620-24. The comment period for the
ANPR closed on June 23, 2008, after the
Commission granted an extension requested by a
major industry trade association. Letter from the
American Petroleum Institute to FTC Secretary
Donald S. Clark, (May 19, 2008), available at
(http://www.ftc.gov/os/comments/
marketmanipulation/index.shtm).
14 Attachment C contains a list of commenters
who submitted comments on the ANPR, together
with the abbreviations used to identify each
commenter referenced in this RNPRM. Electronic
versions of the comments can be found at (http://
www.ftc.gov/os/comments/marketmanipulation/
index.shtm).
15 See Securities Exchange Act of 1934 ("SEA")
10(b), 15 U.S.C. 78j(b); 17 CFR 240.10b-5 ("Rule
10b-5").
16 See Natural Gas Act 4A, 15 U.S.C. 717c-1;
Federal Power Act 222, 16 U.S.C. 791a; Prohibition
of Natural Gas Market Manipulation, 18 CFR 1c.1;Prohibition of Electric Energy Market Manipulation,
18 CFR 1c.2.Commission ("CFTC"),17 pursuant to
each agency's respective market
manipulation authority.
After reviewing the ANPR comments,
on August 19, 2008, the Commission
published an NPRM, setting forth the
text of a proposed Rule and inviting
written comments on issues raised by
the proposed Rule.18 The NPRM
described the basis for and scope of the
proposed Rule; definitions of terms in
the Rule; conduct prohibited by the
Rule; and the elements of a cause of
action under the Rule. The NPRM also
set forth questions designed to elicit
further information from interested
parties. In response to a petition from a
major trade association,19 the
Commission extended the deadline for
submission of comments on the NPRM
from September 18, 2008 to October 17,
2008.20
In response to the NPRM, the
Commission received 34 comments
from interested parties, including
consumers, a consumer advocacy group,
academics, a federal agency, state
government agencies, a Member of
Congress, industry members, and trade
and bar associations.21 On November 6,
2008, Commission staff held a one-day
public workshop on the proposed
Rule.22 Commenters and workshop
participants provided valuable feedback
on several key issues relating to the
proposed Rule, particularly regarding
the application of a rule based on SEC
Rule 10b-5 and the relevance of legal
precedent under securities law to the
petroleum industry. An overview of the
17 See Commodity Exchange Act ("CEA") 9(a)(2),
7 U.S.C. 13(a)(2).
18 73 FR 48317.
19 Letter from the American Petroleum Institute
to FTC Secretary Donald S. Clark, (Sept. 5, 2008),
available at (http://www.ftc.gov/os/comments/
marketmanipulation2/538416-00006.pdj).
20 FTC, Prohibitions On Market Manipulation
and False Information in Subtitle B of Title VIII of
The Energy Independence and Security Act of 2007,
73 FR 53393 (Sept. 16, 2008).
21 Attachment A contains a list of commenters
who responded to the NPRM, together with the
abbreviations used to identify each commenter. In
calculating the number of comments submitted in
response to the NPRM, the Commission treated the
multiple filings from Argus, CFA, CFDR, ISDA, and
NPRA as a single comment for each commenter.
22 Attachment B contains a list of participants in
the workshop, together with the abbreviations used
to identify each workshop participant. The
discussion topics for the workshop included the use
of SEC Rule 10b-5 as a model for an FTC market
manipulation rule; the proper scienter standard for
a rule; the appropriate reach of a rule; the type of
conduct that would violate a rule; and the
desirability of including market or price effects as
an element of a rule violation. Information relating
to the workshop, including a program, transcript,
and archived webcast, can be found at (http://www.ftc.gov/bcp/workshops/marketmanipulation/
index.shtml).major issues reflected in the comments
and at the workshop follows.
Many commenters expressed general
support for an anti-fraud rule, noting
that fraud provides a "good
demarcation" for a market manipulation
rule and would provide the necessary
guidance to market participants.23
Although a few commenters
affirmatively supported the
Commission's proposed Rule, as
articulated in the NPRM,24 the majority
of commenters raised concerns about
the scope and application of the
proposed Rule. Many commenters
thought that the proposed Rule, as
drafted, created a substantial risk of
reaching and chilling legitimate conduct
undertaken in the ordinary course of
business.25
To remedy perceived shortcomings in
the proposed Rule, some commenters
suggested modifications, including: (1)
rejecting SEC Rule 10b-5 as a model for
an FTC rule,26 and (2) making other
23 CFDR (Mills), Tr. at 38; see, e.g., API at 8-9
("[S]upport[ing] the Commission's initial
determination that the scope of the rule should be
'narrowly tailored to address fraudulent practices."'
(quoting 73 FR at 48320)); NPRA at 2 (stating that
a rule should target fraudulent and deceptive
practices); PMAA (Bassman), Tr. at 46-47
(explaining that, in general, fraud is an appropriate
basis for a Section 811 rule); ATAA at 11
(expressing support for the Commission's decision
to propose an anti-fraud rule); see also ISDA (Velie),
Tr. at 40 (expressing support for an anti-fraud rule
if it is coupled with specific intent); ABA Energy
(McDonald), Tr. at 246 (urging the Commission to
focus a rule on deceptive conduct).
24 See, e.g., MS AG at 3 ("[T]he scope of the
proposed Rule is well tailored to ensure that it will
address ... concerns without deterring desirable
market practices that could ultimately benefit
consumers."); PMAA at 3 ("The proposed rule
allows regulated entities to understand both its
intent and how it will be applied ...."); CA AG at
2 (expressing support for the FTC's proposed Rule).
25 See, e.g., Flint Hills at 3 ("[T]he breadth of the
proposed rule would create a significant amount of
uncertainty as to what conduct may be captured by
the Rule, and could apply to completely legitimate
conduct ...."); API at 9 (arguing that the proposed
Rule "would create substantial legal uncertainty for
market participants" that will "deter[] firms from
engaging in legitimate activity"); Sutherland at 2
(stating that the proposed Rule "is considerably
more intrusive of legitimate business behavior than
is necessary"); Plains at 3 ("Given the general
nature of the proposed rule and the uncertainties
that will exist with respect to its scope and
applicability, the imposition of liability without any
finding of an effect on the market ... will restrict
legitimate market activity ...."); NPRA at 3 (stating
that "the proposed Rule falls far short of the
Commission's goal" of prohibiting "'manipulative
and deceptive conduct without discouraging pro-
competitive or otherwise desirable market
practices"' (quoting 73 FR at 48323)) (emphasis
added by commenter).
26 See, e.g., Sutherland at 4 ("We believe that the
Commission is mistaken in proposing to adopt the
[SEC Rule] 10b-5 anti-fraud model ...."); API at 11
(arguing against borrowing, without modification,
the language and precedent of Rule 10b-5); ISDA at
6 (stating that "[s]ecurities precedent does notprovide a helpful framework" for creating a Section
811 rule); NPRA at 2 (stating that an SEC-based rule18306
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United States. Office of the Federal Register. Federal Register, Volume 74, Number 76, April 22, 2009, Pages 18285-18448, periodical, April 22, 2009; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc132938/m1/28/: accessed March 28, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.