Federal Register, Volume 74, Number 76, April 22, 2009, Pages 18285-18448 Page: 18,314
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Federal Register/Vol. 74, No. 76/Wednesday, April 22, 2009/Proposed Rules
basis. Furthermore, the inclusion in the
revised proposed Rule of an explicit
scienter requirement limiting the reach
of the Rule to "knowing" or
"intentional" conduct should assuage
commenter concerns about reaching
rack transactions. Thus, the revised
proposed Rule covers terminal rack
sales.
The Commission has, however,
modified the proposed definition of
"wholesale" in recognition of the
differences that may exist in the
patterns of distribution for crude oil,
gasoline, and petroleum distillates.115
As the Commission noted in the NPRM,
the term "wholesale" may encompass
one or both of the following concepts:
(1) the sale of large quantities of
product, and (2) the sale of a product for
anticipated resale.116 With regard to the
sale of products listed in Section 811,
the Commission recognizes that crude
oil is sold in bulk quantities
independent of terminal racks.
Similarly, large quantities of jet fuel are
often sold directly to airlines at airports
independent of any terminal rack.
Therefore, the Commission is revising
the proposed definition of "wholesale"
to address these differences, clarifying
that all bulk sales of crude oil and jet
fuel-even when not for resale-are
encompassed by the revised proposed
definition.
Specifically, Section 317.2(f) of the
revised proposed Rule defines
"wholesale" to mean "(1) all purchases
or sales of crude oil or jet fuel; and (2)
all purchases or sales of gasoline or
petroleum distillates (other than jet fuel)
at the terminal rack level or upstream of
the terminal rack level." As modified,
this revised definition would not extend
to retail sales of gasoline, diesel fuels, or
fuel oils to consumers;117 therefore, the
language in the originally proposed
definition excluding such sales is now
redundant and has been deleted.118
7. Other Suggested Definitions
A few commenters suggested adding
definitions to any final rule to clarify its
115 One commenter stated that the Commission's
proposed definition "leaves uncertainty as to the
status of retail transactions that involve large end
users." Sutherland at 7.
116 A common definition of "wholesale" is "'the
sale of goods in quantity, as to retailers or jobbers,
for resale."' See 73 FR at 48326 (citing (http://
dictionary.reference.com /browse/wholesale))
(emphasis added).
117 See SIGMA at 1 (agreeing that any Section 811
rule should not apply to retail gasoline sales);
NPRA at 29; API at 30.
118 The definition of "wholesale" in the NPRM
had stated that "[t]ransactions conducted atwholesale do not include retail gasoline sales to
consumers." 73 FR at 48326.scope and operation.119 Specifically,
several commenters proposed
definitions for the terms "manipulative
or deceptive device or contrivance," a
phrase included in the text of Section
811.120 One commenter recommended
that an FTC rule include a broad
definition of the terms "manipulative or
deceptive device, scheme or
contrivance" that encompasses
"manipulative conduct that artificially
distorts wholesale petroleum markets or
undermines incentives to find and
develop reserves of domestic crude
oil."121 Borrowing language from the
NPRM, another commenter urged the
Commission to define a "manipulative
or deceptive act" as an act that "injects
materially false or deceptive
information into the marketplace."'122
One commenter proposed that any rule,
regardless of scope, should define
"manipulation [as] an act that is
deceptive, that causes an effect on
market prices, and [that] is intended by
the actor to have such a result.''123
As described in greater detail in the
discussion of Section 317.3 below, the
Commission believes that the conduct
prohibition in the revised proposed
Rule would give meaning to the term
"manipulative or deceptive devices or
contrivances" found in Section 811,
obviating the need for an additional
definition in the Rule itself. Moreover,
modifications to the proposed Rule's
language clarify the type of conduct that
the revised proposed Rule would
prohibit, providing better guidance to
market participants about its scope.
Consistent with its position in the
119 See generally Van Susteren at 1 (noting that
EISA provided neither a definition for "market
manipulation" nor the specific elements that
constitute a Section 811 violation).
120 One commenter suggested using SEC Rule
10b-5 language to define this term. IPMA at 3-4
(contending "that the [SEA] and SEC Rule 10b-5
definition of 'manipulative device or contrivance'
as 'employ[ing] any device, scheme, or artifice to
defraud' is appropriate in this case").
121 Navajo Nation at 3. Specifically, Navajo
Nation recommended the following definition for
"manipulative device, scheme or contrivance" be
added: "[C]onduct without substantial efficiency
justification that is intended to artificially
stimulate, depress or distort market prices or that
foreseeably could artificially stimulate, depress, or
distort market prices." Id at 8.
122 NPRA at 28 (agreeing "fundamental[ly]" with
the FTC's definition of "manipulative or deceptive
act" in the NPRM). NPRA suggested that the FTC
further define the type of information injected into
the market, by specifying that the information must
be about important aspects of supply or demand. Id.
at 21.
123 Muris at 2; see also ISDA at 10 (stating that
CEA legal precedent has defined "manipulative" as
'"an intentional exaction of a price determined by
forces other than supply and demand'" (quoting
Frey v. CFTC, 931 F.2d 1171, 1175 (7th Cir. 1991)).
But see NPRA (DeSanti), Tr. at 250-51 (arguingagainst the use of the CFTC's definition of "market
manipulation").NPRM, the Commission intends to focus
on fraudulent and deceptive conduct
that injects false information into
market transactions.124 At this time, the
Commission believes that it remains
unnecessary to define either
"manipulative or deceptive device or
contrivance" or "manipulative or
deceptive act."
D. Section 317.3: Prohibited Practices
1. Initial Proposed Rule
Section 317.3 of the initially proposed
Rule contained three subparts (a) - (c),
which respectively would have made it
unlawful for any person:
(a) To use or 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 that operates or
would operate as a fraud or deceit upon
any person.125
The NPRM discussed the scope and
application of each subpart and
articulated the elements of a cause of
action under the proposed Rule.
Commenters responded to the NPRM by
discussing both the language of the
proposed Rule and its proposed
elements. Several industry commenters
addressed the conduct provisions
contained in proposed Section 317.3(a)-
(c). Some commenters believed that the
conduct provisions were generally
appropriate,126 and some expressed
specific support for individual subparts.
For example, PMAA advised that it
would support the language used in
proposed Section 317.3(a), as long as the
proposed Rule also contained a scienter
requirement.127 ATAA also supported
proposed Section 317.3(c), noting that
"[t]his flexible standard is exactly the
sort of general prohibition of illegality
that the FTC has successfully enforced
over its almost 100 year history."128 In
addition, some commenters agreed with
124 See Section IV.A. for a discussion of the Rule
as an anti-fraud rule.
125 73 FR at 48326 (proposing language nearly
identical to that employed in SEC Rule 10b-5); see
also 17 CFR 240.10b-5.
126 See, e.g., CA AG at 2 (agreeing with the
conduct provisions of the proposed Rule); MS AG
at 2 (endorsing the Commission's proposed Rule);
ATA at 2 (stating that the proposed Rule properly
prohibits manipulation); see also SIGMA at 2 ("In
particular, the Commission's decision to base its
rule on Section 10b-5 of the [SEA] properly ensures
consumer protection while affording business
owners a wealth of certainty with respect to their
market practices.").
127 PMAA at 3.128 ATAA at 12.
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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/m1/36/?rotate=270: accessed April 23, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.