Federal Regulators Finalize Tough New Market Manipulation Rule Required by Cantwell

New rule better protects consumers, enables CFTC to more effectively prosecute and deter Enron-style market manipulation in commodity and derivatives markets CFTC Commissioner: ‘Without Senator Cantwell, these provisions wouldn’t exist’

WASHINGTON, D.C. – Today, the Commodity Futures Trading Commission (CFTC) approved a new, tougher market manipulation rule required by legislation authored by U.S. Senator Maria Cantwell (D-WA) as part of last year’s historic Dodd-Frank Wall Street reform bill. The new rule will enable the CFTC to more effectively prosecute and deter Enron-style manipulation of the commodity futures and derivatives market prices. With today’s vote of approval, the new rule will go into effect 30 days after publication in the Federal Register.

Until now, the standard the CFTC must meet to prove market manipulation has been so high that there has only been one successful prosecution in the past 35 years. The CFTC’s “specific intent” standard of proof has been harder to enforce than the fraud-based “reckless conduct” standard employed by other agencies such as the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC) and the Federal Trade Commission (FTC) that oversee other financial and energy markets.

Cantwell’s rule empowers the CFTC 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. Cantwell was instrumental in granting the same authority and legal standard to FERC on electricity and natural gas markets in 2005 following her historic battle with Enron, and to the FTC on wholesale oil markets in 2007. 

“Commodity prices impact every aspect of our economy and consumers deserve to pay a fair price based on supply and demand,” Cantwell said. “This new anti-market manipulation rule creates a bright line which will deter bad actors from trying to get away with Enron-style behavior. Other federal regulators have used these same anti-market manipulation tools to stop and prosecute bad actors in other markets, and my hope is that the CFTC will do the same particularly in the oil futures market. These new rules of the road will enable the cops on the beat to prosecute market manipulators to the fullest extent of the law.”

“I thank Senator Maria Cantwell for her work to secure this important authority for the CFTC,” said CFTC Chairman Gary Gensler in his prepared statement. “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.’”

 “I particularly thank Senator Maria Cantwell for her leadership on the anti-fraud and anti-manipulation provisions,” said CFTC Commissioner Bart Chilton in his prepared statement. “Without Senator Cantwell these provisions wouldn’t exist.”

Because current law makes it difficult for the CFTC to effectively meet its mandate to investigate and punish market manipulation, there is little or no deterrent against abusive practices. Cantwell’s rule changes the burden of proof for the CFTC to prosecute market manipulation from “specific intent” to do harm to the same fraud-based “reckless conduct” standard currently employed by the SEC, FERC and the FTC. As of March 2011, FERC has used the law to conduct 93 investigations resulting in 45 settlements and civil penalties of $122,230,000 and disgorgement of profits totaling $35,945,000. 

Cantwell’s market manipulation rule was enacted into law last year as part of the Dodd-Frank Financial Reform bill.