October 27, 2010
CFTC Rules on Market Manipulation Incorporate Sympathy Provision
The CFTC yesterday announced its proposed rules on market manipulation, as required by Dodd-Frank (the available factsheet can be found in pdf here). Proposed section 6(c)(1) tracks SEC Rule 10b-5 and is similar to the rule promulgated by the Federal Energy Regulatory Commission (FERC) under authority granted in 2005 (18 C.F.R. § 1c). The FTC also created similar rules in 2007.
The CFTC language adds a new wrinkle, stating that is unlawful to
deliver or cause to be delivered, or attempt to deliver or cause to be delivered, for transmission through the mails or interstate commerce, by any means of communication whatsoever, a false or misleading or inaccurate report concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce, knowing, or acting in reckless disregard of the fact that such report is false, misleading or inaccurate. Notwithstanding the foregoing, no violation of this subsection shall exist where the person mistakenly transmit, in good faith, false or misleading information to a price reporting service.
As someone who formerly practiced before FERC, this new provision reminds me of a mistake made by a natural gas company back in 2004 (see here). The company had generated a correct report, but the clerk charged with sending the information about natural gas withdrawals to the Energy Information Administration accidentally attached the wrong data file. This was a pretty big mistake, and it was one that cost consumers because it created a spike in futures prices.
As most of us know, it's pretty easy to attach the wrong file if you aren't paying close attention. As lawyers, we must to be vigilant about such things. However, it's also reasonable to have regulators include some "there but for the grace of God" provisions from time to time.