Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 14943 

Deletions 

On 1/21/2011 (76 FR 3879–3880), the 

Committee for Purchase From People Who 

Are Blind or Severely Disabled published 

notice of proposed deletions from the 

Procurement List. 

After consideration of the relevant matter 

presented, the Committee has determined 

that the products and service listed below are 

no longer suitable for procurement by the 

Federal Government under 41 U.S.C. 46–48c 

and 41 CFR 51–2.4. 

Regulatory Flexibility Act Certification 

I certify that the following action will not 

have a significant impact on a substantial 

number of small entities. The major factors 

considered for this certification were: 

1. The action will not result in additional 

reporting, recordkeeping or other compliance 

requirements for small entities. 

2. The action may result in authorizing 

small entities to furnish the products and 

service to the Government. 

3. There are no known regulatory 

alternatives which would accomplish the 

objectives of the Javits-Wagner-O’Day Act (41 

U.S.C. 46–48c) in connection with the 

products and service deleted from the 

Procurement List. 

End of Certification 

Accordingly, the following products and 

service are deleted from the Procurement 

List: 

Products 

Floor Care Products 

NSN: 7930–01–486–4050 

NSN: 7930–01–486–5928 

NSN: 7930–01–486–5930 

NPA: Lighthouse for the Blind of Houston, 

Houston, TX. 

Contracting Activity: General Services 

Administration, Fort Worth, TX. 

Service 

Service Type/Location: Laundry Service, 

Atlanta VA Medical Center, Decatur, GA. 

NPA: GINFL Services, Inc., Jacksonville, FL. 

Contracting Activity: Department of Veterans 

Affairs, VISN 7 Consolidated 

Contracting, Augusta, GA. 

Barry S. Lineback, 

Director, Business Operations. 

[FR Doc. 2011–6422 Filed 3–17–11; 8:45 am] 

BILLING CODE 6353–01–P 

COMMITTEE FOR PURCHASE FROM 

PEOPLE WHO ARE BLIND OR 

SEVERELY DISABLED 

Procurement List; Proposed Additions 

AGENCY: Committee for Purchase From 

People Who Are Blind or Severely 

Disabled. 

ACTION: Proposed Additions to the 

Procurement List. 

SUMMARY: The Committee is proposing 

to add products to the Procurement List 

that will be furnished by a nonprofit 

agency employing persons who are 

blind or have other severe disabilities. 

Comments Must Be Received on or 

Before: 4/18/2011. 

ADDRESSES: Committee for Purchase 

From People Who Are Blind or Severely 

Disabled, Jefferson Plaza 2, Suite 10800, 

1421 Jefferson Davis Highway, 

Arlington, Virginia 22202–3259. 

FOR FURTHER INFORMATION OR TO SUBMIT

COMMENTS CONTACT: Barry S. Lineback, 

Telephone: (703) 603–7740, Fax: (703) 

603–0655, or e-mail 

CMTEFedReg@AbilityOne.gov. 

SUPPLEMENTARY INFORMATION: This 

notice is published pursuant to 41 

U.S.C. 47(a)(2) and 41 CFR 51–2.3. Its 

purpose is to provide interested persons 

an opportunity to submit comments on 

the proposed actions. 

Additions 

If the Committee approves the 

proposed additions, the entities of the 

Federal Government identified in this 

notice will be required to procure the 

products listed below from a nonprofit 

agency employing persons who are 

blind or have other severe disabilities. 

Regulatory Flexibility Act Certification 

I certify that the following action will 

not have a significant impact on a 

substantial number of small entities. 

The major factors considered for this 

certification were: 

1. If approved, the action will not 

result in any additional reporting, 

recordkeeping or other compliance 

requirements for small entities other 

than the small organization that will 

furnish the products to the Government. 

2. If approved, the action will result 

in authorizing small entities to furnish 

the products to the Government. 

3. There are no known regulatory 

alternatives which would accomplish 

the objectives of the Javits-WagnerO’Day Act (41 U.S.C. 46–48c) in 

connection with the products proposed 

for addition to the Procurement List. 

Comments on this certification are 

invited. Commenters should identify the 

statement(s) underlying the certification 

on which they are providing additional 

information. 

End of Certification 

The following products are proposed 

for addition to Procurement List for 

production by the nonprofit agency 

listed: 

Products 

NSN: MR 899—Slicer, Pineapple, 

Stainless 

NSN: MR 1135—Set, Spreader, 4Pc 

NSN: MR 1136—Mug, Seasonal 

NPA: Industries for the Blind, Inc., West 

Allis, WI. 

Contracting Activity: Military ResaleDefense Commissary Agency, Fort 

Lee, VA. 

Coverage: C–List for the requirements of 

military commissaries and 

exchanges as aggregated by the 

Defense Commissary Agency. 

Barry S. Lineback, 

Director, Business Operations. 

[FR Doc. 2011–6421 Filed 3–17–11; 8:45 am] 

BILLING CODE 6353–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Antidisruptive Practices Authority 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed Interpretive Order. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing this interpretive 

order to provide interpretive guidance 

regarding the three statutory disruptive 

practices set forth in new section 

4c(a)(5) of the Commodity Exchange Act 

(‘‘CEA’’) pursuant to section 747 of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (‘‘Dodd-Frank 

Act’’). The Commission requests 

comment on all aspects of the proposed 

interpretive order. 

DATES: Comments must be received on 

or before May 17, 2011. 

ADDRESSES: Comments, identified by 

RIN number, may be sent by any of the 

following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

FOR FURTHER INFORMATION CONTACT: 

Robert Pease, Counsel to the Director of 

Enforcement, 202–418–5863, 

rpease@cftc.gov; Steven E. Seitz, 

Attorney, Office of the General Counsel, 

202–418–5615, sseitz@cftc.gov; or Mark 

D. Higgins, Counsel to the Director of 

Enforcement, 202–418–5864, 

mhiggins@cftc.gov, Commodity Futures 

Trading Commission, Three Lafayette 


Emcdonald on DSK2BSOYB1PROD with NOTICES
14944 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 

1 5 U.S.C. 552. 

2 17 CFR 145.9. 

3See Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010, Public Law 111– 

203, 124 Stat. 1376 (2010). The text of the DoddFrank Act may be accessed at http://www.cftc.gov./ 

LawRegulation/OTCDERIVATIVES/index.htm. 

4Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

5 7 U.S.C. 1 et seq. 6 75 FR 67301, Nov. 2, 2010. 

7The ANPR may be accessed through: http:// 

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=893. 

8 75 FR 67302, Nov. 2, 2010. 

9See Appendix III for a list of roundtable 

participants and discussion panels. A verbatim 

transcript of the disruptive trading practices 

roundtable may be accessed at http://www.cftc.gov/ 

ucm/groups/public/@swaps/documents/ 

dfsubmission/dfsubmission24_120210-transcri.pdf. 

10Note that citations to statements by the 

panelists at the public roundtable will be cited as 

[Panelist name at page X of roundtable transcript]. 

11 75 FR 67301, Nov. 2, 2010. 

12See Appendix IV for a list of parties submitting 

comment letters in response to the ANPR. 

13The comment letters received by the 

Commission in response to the ANPR may be 

accessed through: http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=893. 

14Liam Connell at 40 (‘‘Allston Trading supports 

the mission of the CFTC to maintain orderly 

markets and to prohibit deceptive practices and 

manipulative trading.’’); Rajiv Fernando at 17 (‘‘I 

support the CFTC’s effort to ensure that markets 

operate in an orderly way that’s fair for all 

participants.’’); Argus at 1 (‘‘Argus supports the 

important goal of preventing disruptive trade 

practices in CFTC jurisdictional markets.’’). 

Centre, 1151 21st Street, NW., 

Washington, DC 20581. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act 

(‘‘FOIA’’),1 a petition for confidential 

treatment of the exempt information 

may be submitted according to the 

established procedures in § 145.9 of the 

CFTC’s regulations.2 The Commission 

reserves the right, but shall have no 

obligation, to review, prescreen filter, 

redact, refuse, or remove any or all of 

your submission from http:// 

www.cftc.gov that it may deem to be 

inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under FOIA. 

SUPPLEMENTARY INFORMATION: 

Prohibition of Disruptive Practices 

I. Statutory and Regulatory Authorities 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).3 Title VII of the 

Dodd-Frank Act 4 amended the 

Commodity Exchange Act (‘‘CEA’’) 5 to 

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating robust recordkeeping and realtime reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

Section 747 of the Dodd-Frank Act 

amends section 4c(a) of the CEA to add 

a new section entitled ‘‘Disruptive 

Practices.’’ New CEA section 4c(a)(5) 

makes it unlawful for any person to 

engage in any trading, practice, or 

conduct on or subject to the rules of a 

registered entity that— 

(A) Violates bids or offers; 

(B) Demonstrates intentional or 

reckless disregard for the orderly 

execution of transactions during the 

closing period; or 

(C) Is, is of the character of, or is 

commonly known to the trade as, 

‘‘spoofing’’ (bidding or offering with the 

intent to cancel the bid or offer before 

execution). 

Dodd-Frank Act section 747 also 

amends section 4c(a) by granting the 

Commission authority under new CEA 

section 4c(a)(6) to promulgate such 

‘‘rules and regulations as, in the 

judgment of the Commission, are 

reasonably necessary to prohibit the 

trading practices’’ enumerated therein 

‘‘and any other trading practice that is 

disruptive of fair and equitable trading.’’ 

The Commission is issuing this 

proposed interpretive order to provide 

market participants and the public with 

guidance on the scope of the statutory 

prohibitions set forth in section 4c(a)(5). 

The Commission requests comment on 

all aspects of this proposed interpretive 

order, as well as comment on the 

specific provisions and issues 

highlighted below. 

II. Background 

On November 2, 2010, the 

Commission issued an advance notice of 

proposed rulemaking (‘‘ANPR’’) asking 

for public comment on all aspects of 

Dodd-Frank Act section 747.6 When the 

ANPR was issued, the Commission was 

considering whether to adopt 

regulations regarding the disruptive 

practices set forth in new CEA section 

4c(a)(5). After reviewing the ANPR 

comments, the Commission determined 

that it was appropriate to address the 

statutory disruptive practices through a 

proposed interpretive order. 

Accordingly, a Commission document 

terminating the ANPR is being 

published elsewhere in the Proposed 

Rules section of this issue of the Federal 

Register. Notwithstanding that 

termination, the Commission 

considered all of the ANPR commentary 

in developing this proposed interpretive 

order. 

In the ANPR, commenters were 

encouraged to address the nineteen 

specific questions posed by the 

Commission in the ANPR.7 The ANPR 

requested, among other things, comment 

on section 747(A) (‘‘violating bids and 

offers’’), section 747(B) (‘‘the disorderly 

execution of transactions around the 

closing period’’), section 747(C) 

(‘‘spoofing’’), the role of executing 

brokers, and the regulation of 

algorithmic and automated trading 

systems.8 The questions in the ANPR 

also formed the basis for a December 2, 

2010, roundtable held by Commission 

staff in Washington, DC.9 The full-day 

roundtable consisted of three panels 10

that addressed the ANPR questions, the 

role of exchanges in CFTC-regulated 

markets, and whether there are other 

potential disruptive trading practices 

that the Commission should prohibit. 

The ANPR set a deadline of January 3, 

2011, by which comments had to be 

submitted.11 In response to the ANPR, 

the Commission received 28 comments 

from interested parties,12 including 

industry members, trade associations, 

consumer groups, exchanges, one 

member of the U.S. Congress, and other 

interested members of the public.13 The 

Commission has carefully considered all 

of the ANPR comments, as well as the 

roundtable discussion, in proposing this 

interpretive order. 

Throughout the roundtable discussion 

and comment letters, there was 

widespread support for the 

Commission’s goal of preventing 

disruptive trading practices and 

ensuring fair and equitable markets.14

Several themes emerged from the 

roundtable discussion and the comment 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 14945 

15See. e.g., Gary DeWaal at 57 (‘‘This is an 

incredibly vague provision.’’); Greg Mocek at 170 

(‘‘There are a lot of issues on vagueness.’’). 

16See, e.g., Adam Nunes at 20 (‘‘Additional 

guidance * * * is going to be necessary.’’); Ike 

Gibbs at 157 (‘‘We would really prefer to see a 

scenario where the Commission is not overly 

prescriptive [and] we’re given guidance as to what’s 

appropriate and what’s not appropriate.’’). 

17See, e.g., Managed Funds Association at 4 

(‘‘Dodd-Frank Act Section 747 as written is vague 

and particularly vulnerable to constitutional 

challenge by market participants.’’); CME Group at 

2 (‘‘As written, Section 747 is vague and susceptible 

to constitutional challenge.’’). 

18See, e.g., American Petroleum Institute at 2 

(‘‘The Commission should provide specific 

guidance regarding the scope of the trading 

practices listed in 747.’’); Investment Company 

Institute at 2 (Recommending that the ‘‘Commission 

provide additional guidance as to the types of 

conduct that would constitute violations under the 

statute.’’); HETCO at 4 (‘‘The Commission should 

resolve the ambiguity in Section 4c(a)(5) by 

articulating the specific types of disruptive 

practices that prompted it to request the new 

enforcement authority in Section 747.’’). 

19See, e.g., Adam Nunes at 26 (‘‘When we look 

at disruptive trading practices and the intentional 

reckless disregard for orderly execution that is 

going to be very difficult to define.’’). 

20See, e.g., Don Wilson at 46 (‘‘The definition of 

those rules around what is and is not acceptable in 

the closing period needs to be carefully 

considered.’’). 

21See, e.g., Gary DeWaal at 64 (‘‘I’m not sure the 

definition of spoofing can be agreed upon by the ten 

people around this table.’’); John J. Lothian at 82 

(Referring to ‘spoofing’ as a ‘‘very undefined type of 

term within the industry.’’). 

22See, e.g., Futures Industry Association at 3 

(‘‘Definitions such as ‘orderly execution,’ ‘violates 

bids or offers’ and ‘spoofing’ in Sections 4c(a)(5)(A), 

(B) and (C), respectively, require refinement and 

clarification by the Commission.’’). 

23See, e.g., Adam Nunes at 36 (‘‘The intent to 

manipulate * * * [is] critically important.’’); 

Cameron Smith at 37 (‘‘What really needs to be 

there in my mind is some notions of intent or 

phrases like ‘‘for the purpose of.’’); Don Wilson at 

47 (‘‘I think it really comes down to intent.’’); Mark 

Fabian at 163 (‘‘I think everyone has agreed that 

intent is something that is required.’’). 

24See, e.g., Chopper Trading at 3 (‘‘Any definition 

of spoofing must include an element of an intent 

to manipulate the market.’’); FIA at 4 (‘‘The 

Commission should clarify that manipulative intent 

to create an artificial price is required to violate 

5(A)’s prohibition on violating bids or offers * * * 

[and] that manipulative intent is necessary under 

5(B)’s prohibition.’’); International Swaps and 

Derivatives Association at 3 (‘‘Manipulative intent 

is a necessary element of ‘manipulative’ or 

‘disruptive’ conduct.’’). 

25See, e.g., Adam Nunes at 94 (‘‘[I]t’s really a 

pattern and practice of activity.’’); John Hyland at 

147 (‘‘It’s patterns and practices, facts and 

circumstances.’’); Mark Fabian at 163 (‘‘A pattern is 

also required.’’). 

26The Commission does not believe that a trade 

becomes subject to 4c(a)(5) solely because it is 

reported on a swap data repository, even though a 

swap data repository is a registered entity. 

27See, e.g., CME Group Rule 432B.2 (‘‘It shall be 

an offense * * * to engage in conduct or 

proceedings inconsistent with just and equitable 

principles of trade.’’). 

28See, e.g., FIA at 10 (‘‘FIA strongly believes that 

a multi-layered enforcement approach, which 

implements policies and procedures at the firm, 

exchange and clearing level, will most effectively 

mitigate the risk of market disruptions.’’). 

29See, e.g., Greg Mocek at 173 (‘‘There’s more 

practical issues to think about in the context of the 

concepts themselves and how the industry is 

structured, like violating a bid and an offer.’’); Ken 

Raisler at 176 (generally asking how the concept of 

violating bids and offers applies to over-the-counter 

markets, swap execution facilities, and block 

trades). 

30See, e.g., CME Group at 4 (‘‘The Commission 

should make clear that the prohibition on violating 

bids or offers is not intended to create a best 

execution standard across venues as any such 

standard would be operationally and practically 

untenable.’’). 

31See, e.g., ISDA at 2 (‘‘The phrase ‘violating bids 

and offers’ simply has no meaning in most if not 

all swaps markets. The pricing and trading of many 

swaps involves a variety of factors (e.g., size, credit 

risk) which, taken together, render the concept of 

‘‘violating bids or offers’’ as inapposite.’’). 

32See, e.g., CME Group at 4 (generally discussing 

how the concept of violating bids and offers applies 

to open outcry trading environments). 

33See, e.g., FIA at 4 (‘‘The Commission should 

clarify that the prohibition on violating bids or 

offers does not apply in the over-the-counter 

markets.’’). 

34See, e.g., CME Group at 4 (‘‘Order matching 

algorithms on electronic platforms preclude bids 

and offers from being violated.’’); FIA at 4 

(‘‘Matching engines make it impossible to sell or 

buy except at the best available quote.’’); MFA at 5 

(‘‘The term ‘violate bids or offers’ * * * has 

virtually no application to electronic trading where 

systems buy or sell at the best available quote.’’). 

letters, which are discussed below in 

the following sections. 

a. Market Participants Request 

Additional Guidance Regarding the 

Scope and Application of Section 747’s 

Provisions 

Throughout the Commission 

roundtable, panelists stated that the 

provisions of section 747 were vague 15

and did not provide market participants 

with adequate notice of the type of 

trading, practices, and conduct that is 

prohibited by section 4c(a)(5).16 Several 

comment letters also raised concerns 

about vagueness and believed that 

Dodd-Frank Section 747 was susceptible 

to constitutional challenge.17 Comment 

letters requested that the Commission 

provide additional guidance concerning 

the conduct and trading practices that 

constitute violations under the statute.18

During the roundtable discussion, 

panelists also requested additional 

clarity and refinement in the definition 

of terms such as ‘‘the orderly execution 

of transactions,’’ 19 ‘‘closing period,’’ 20

and ‘‘spoofing.’’ 21 The comment letters 

reiterated this concern and expressed 

the need for the Commission to define 

these terms and other concepts such as 

violating bids and offers.22

Panelists and commenters also sought 

clarity on whether scienter is required 

for each of the enumerated practices of 

section 4c(a)(5), and if so, specificity as 

to the degree of intent required. 

Roundtable panelists 23 and 

commenters 24 stated that a showing of 

bad intent should be necessary to 

distinguish prohibited conduct from 

legitimate trading activities. Panelists 

further stressed that any evaluation of 

trading behavior must consider the 

historical trading patterns and practices 

of market participants.25

In response to these comments, the 

Commission is proposing this 

Interpretive Order to provide additional 

guidance to market participants and the 

public on the types of trading, conduct, 

and practices that will constitute 

violations of section 4c(a)(5). This 

proposed interpretive order addresses 

the concerns expressed by the 

commenters regarding market 

uncertainty by clarifying how the 

Commission will interpret and 

implement the provisions of section 

4c(a)(5). By the terms of the statute, 

4c(a)(5) applies to trading, practices or 

conduct on or subject to the rules of a 

registered entity: a designated contract 

market or a swap execution facility 

(‘‘SEF’’).26 The Commission interprets 

that section 4c(a)(5) will not apply to 

block trades or exchanges for related 

positions (‘‘EFRPs’’) transacted in 

accordance with the rules of a 

designated contract market or SEF or 

bilaterally negotiated swap transactions. 

The Commission stresses the 

important role and unique position of 

exchanges and self-regulatory 

organizations to ensure that markets 

operate in a fair and equitable manner 

without disruptive trading practices.27

The Commission agrees with 

commenters and panelists that a multilayered, coordinated approach is 

required to prevent disruptive trading 

practices and ensure fair and equitable 

trading through enforcement of these 

provisions.28

i. Violating Bids and Offers 

1. Comments From ANPR and 

Roundtable 

During the roundtable discussion, 

panelists questioned how the concept of 

violating bids and offers applies across 

various trading platforms and markets.29

Commenters expressed a similar 

concern 30 and requested that the 

Commission clarify how the prohibition 

against violating bids and offers applies 

to swaps,31 open outcry pits,32

infrequently traded over-the-counter 

products,33 and electronic trading 

venues where the best bid and offer are 

matched automatically by algorithm.34

2. Commission Guidance 

The Commission interprets section 

4c(a)(5)(A) as prohibiting any person 

from buying a contract at a price that is 


Emcdonald on DSK2BSOYB1PROD with NOTICES
14946 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 

35See, e.g., New York Mercantile Exchange Rule 

514.A.3; Minneapolis Grain Exchange Rule 731.00. 

36See, e.g., CME Group at 4 (‘‘Order matching 

algorithms on electronic platforms preclude bids 

and offers from being violated.’’). 

37See, e.g., Greg Mocek at 173 (‘‘It’s easy to define 

the term ‘closing period’ presumably in a 

designated contract market. Are you planning on 

defining that period in a SEF?’’). 

38See, e.g., API at 12 (‘‘Trading practices or 

conduct outside the closing period are not relevant 

to determine whether conduct inside the closing 

period is deemed ‘orderly’.’’); HETCO at 7 (‘‘HETCO 

urges the Commission to refrain from applying the 

prohibition against disorderly trading to an overly 

broad trading time period.’’); CEF at 6 (‘‘The 

Commission should refrain from looking at trading 

practices outside of the closing period.’’). 

39See, e.g., FIA at 5 (‘‘The Commission should 

clarify that traditionally accepted types of market 

manipulation, such as ‘banging the close,’ ‘marking 

the close’ and pricing window manipulation fall 

under the prohibition of 5(B).’’). 

40See, e.g., Hammond v. Smith Barney, Harris 

Upham & Company, Inc., [1990–1992 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) ¶ 24,617 (CFTC 

Mar. 1, 1990) (scienter requires proof that a 

defendant committed the alleged wrongful acts 

‘‘intentionally or with reckless disregard for his 

duties under the Act’’); Drexel Burnham Lambert, 

Inc. v. CFTC, 850 F.2d 742, 748 (DC Cir. 1988) 

(holding that recklessness is sufficient to satisfy 

scienter requirement and that a reckless act is one 

where there is so little care that it is ‘‘difficult to 

believe the [actor] was not aware of what he was 

doing’’) (quoting First Commodity Corp. v. CFTC, 

676 F.2d 1, 7 (1st Cir. 1982)). 

41United States v. Ragen, 314 U.S. 513, 524 

(1942). 

42Closing periods may include the time period in 

which a daily settlement price is determined, the 

expiration day for a futures contract, and any period 

of time in which the cash-market transaction prices 

for a physical commodity are used in establishing 

a settlement price for a futures contract, option, or 

swap (as defined by the CEA). 

43Concepts applicable to the securities markets 

are useful in analyzing commodity markets because 

of similarities between the two areas. Concerning 

orderliness of markets, see, e.g., In re NYSE 

Specialists Securities Litigation, 503 F.3d 89 (2d 

Cir. 2007) (discussing role of specialists in 

maintaining orderly market and various 

circumventions of that role); Last Atlantis Partners, 

LLC v. AGS Specialist Partners, 533 F.Supp. 2d 828 

(N.D. Ill. 2008) (allegation that trading specialists 

disengaged automated order execution mechanism 

to discriminate against customers having direct 

access to markets); LaBranche & Co., NYSE AMEX 

Hearing Board Decisions 09–AMEX–28, –29, and 

–30 (Oct. 2009) and NYSE Member Education 

higher than the lowest available offer 

price and/or selling a contract at a price 

that is lower than the highest available 

bid price. Such conduct, regardless of 

intent, disrupts the normal forces of 

supply and demand that are the 

foundation of fair and equitable trading. 

This proposed interpretive order is 

consistent with exchange rules that 

prohibit the violation of bids and 

offers.35 Notably, Congress did not 

include an intent requirement in section 

4c(a)(5)(A) as it did in both sections 

4c(a)(5)(B) and (C). Accordingly, the 

Commission interprets section 

4c(a)(5)(A) as a per se offense, that is, 

the Commission is not required to show 

that a person violating bids or offers did 

so with any intent to disrupt fair and 

equitable trading. 

The Commission agrees that section 

4c(a)(5)(A) does not apply where a 

person is unable to violate a bid or 

offer—i.e. when a person is utilizing an 

electronic trading system where 

algorithms automatically match the best 

bid and offer.36 Section 4c(a)(5)(A) will 

operate in any trading environment 

where a person exercises some control 

over the selection of the bids or offers 

against which they transact, including 

in an automated trading system which 

operates without pre-determined 

matching algorithms. The Commission 

recognizes that at any particular time 

the bid-ask spread in one trading 

environment may differ from the bid-ask 

spread in another trading environment. 

Accordingly, in the view of the 

Commission, section 4c(a)(5)(A) does 

not create any sort of best execution 

standard across multiple trading 

platforms and markets; rather, a 

person’s obligation to not violate bids or 

offers is confined to the specific trading 

venue which he or she is utilizing at a 

particular time. Finally, section 

4c(a)(5)(A) does not apply where an 

individual is ‘‘buying the board’’—that 

is, executing a sequences of trades to 

buy all available bids or offers on that 

order book in accordance with the rules 

of the facility on which the trades were 

executed. 

ii. Orderly Execution of Transactions 

During the Closing Period 

1. Comments From ANPR and 

Roundtable 

Roundtable panelists expressed the 

view that additional clarity was needed 

for the definitions incorporated in 

section 747(B), in particular, terms such 

as ‘‘closing period.’’ 37 Commenters also 

requested clarification on the definition 

of closing period and requested 

Commission guidance on whether the 

prohibition on disorderly execution of 

transactions extends to conduct 

occurring outside the closing period.38

More specifically, some commenters 

requested that the prohibitions in 

section 747(B) be limited to 

manipulative conduct such as ‘‘banging’’ 

or ‘‘marking the close.’’ 39

2. Commission Guidance 

New CEA section 4c(a)(5)(B) prohibits 

any trading, practices, or conduct on or 

subject to the rules of a registered entity 

that ‘‘demonstrates intentional or 

reckless disregard for the orderly 

execution of transactions during the 

closing period.’’ In the view of the 

Commission, Congress’s inclusion of a 

scienter requirement means that 

accidental, or even negligent, trading 

conduct and practices will not suffice 

for a claim under section 4c(a)(5)(B); 

rather a market participant must at least 

act recklessly.40 Accordingly, section 

4c(a)(5)(B) will not capture legitimate 

trading behavior and is not ‘‘a trap for 

those who act in good faith.’’ 41

The Commission interprets the 

closing period to be generally defined as 

the period in the contract or trade when 

the daily settlement price is determined 

under the rules of that trading facility.42

While the Commission interprets the 

prohibition in section 4c(a)(5)(B) to 

encompass any trading, conduct, or 

practices occurring inside the closing 

period that affects the orderly execution 

of transactions during the closing 

period, potential disruptive conduct 

outside that period may nevertheless 

form the basis for an investigation of 

potential violations under this section 

and other sections under the Act. With 

respect to swaps executed on a SEF, a 

swap will be subject to the provisions of 

section 4c(a)(5)(B) if a closing period or 

daily settlement price exists for the 

particular swap. Additionally, section 

4c(a)(5)(B) violations will include 

executed orders as well as any bids and 

offers submitted by individuals for the 

purposes of disrupting fair and 

equitable trading. 

Similar to other intent-based 

violations of the CEA, the Commission 

will consider all of the relevant facts 

and circumstances in determining 

whether a person violated section 

4c(a)(5)(B). The Commission will 

evaluate the facts and circumstances as 

of the time the person engaged in the 

relevant trading, practices, or conduct 

(i.e. the Commission will consider what 

the person knew, or should have 

known, at the time he or she was 

engaging in the conduct at issue). The 

Commission will use existing concepts 

of orderliness of markets when assessing 

whether trades are executed, or orders 

are submitted, in an orderly fashion in 

the time periods prior to and during the 

closing period. In the view of the 

Commission, an orderly market may be 

characterized by, among other things, 

parameters such as a rational 

relationship between consecutive 

prices, a strong correlation between 

price changes and the volume of trades, 

levels of volatility that do not materially 

reduce liquidity, accurate relationships 

between the price of a derivative and 

the underlying such as a physical 

commodity or financial instrument, and 

reasonable spreads between contracts 

for near months and for remote 

months.43 Participants and regulators in 


Emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 14947 

Bulletin 2006–19 (discussing the proper design and 

use of specialist algorithms to avoid taking liquidity 

from the market at and surrounding the prevailing 

market price). 

44See, e.g., Cargill, Inc. v. Hardin, 452 F.2d 1154, 

1170–71 (8th Cir. 1971) (market disruption through 

‘‘squeeze’’ of shorts characterized by extraordinary 

price fluctuations, with little relationship to basic 

supply and demand factors for wheat; other markets 

not similarly affected; long employed unusual 

mechanism to liquidate position). 

45For example, absent an intentional or reckless 

disregard for the orderly execution of transactions 

during the closing period, a person would not be 

liable under 4c(a)(5)(B) upon executing an order 

during the closing period simply because the 

transactions had a substantial effect on the 

settlement price. 

46See, e.g., John J. Lothian at 82 (referring to 

spoofing as ‘‘a very undefined type of term within 

the industry’’). 

47See, e.g., Chopper Trading at 3 (‘‘The 

Commission must consider that spoofing does not 

have a generally understood definition in the 

futures markets.’’). 

48See, e.g., CME Group at 8 (‘‘The statute’s 

definition of ‘spoofing’ as ‘bidding or offering with 

the intent to cancel the bid or offer before 

execution,’ is too broad and does not differentiate 

legitimate market conduct from manipulative 

conduct that should be prohibited. The 

distinguishing characteristic between ‘spoofing’ that 

should be covered by paragraph (C) and the 

legitimate cancellation of other unfilled or partially 

filled orders is that ‘spoofing’ involves the intent to 

enter non bona fide orders for the purpose of 

misleading market participants and exploiting that 

deception.’’); HETCO at 7 (‘‘The Commission should 

describe, with specificity, what trade practices 

constitute spoofing, particularly where this is not a 

concept familiar to the markets for commodities 

and derivatives.’’); ICE at 8 (generally discussing the 

practice of ‘‘spoofing’’ as defined in paragraph (C) 

of Section 747 may capture legitimate trading 

behavior). 

49See, e.g., API at 14 (‘‘The Commission has 

requested comment on whether a ‘‘partial fill of an 

order * * * necessarily exempts that activity from 

being defined as ‘spoofing.’ The answer is yes.’’); 

HETCO at 8 (‘‘A partial fill of an order or series of 

orders should not exempt the activity described 

above from being defined as ‘spoofing’.’’). 50Similar to violations under section 4c(a)(5)(B), 

accidental or negligent trading, practices, and 

conduct will not constitute violations of section 

4c(a)(5)(C). 

51See, e.g., Trillium Brokerage Services, LLC, 

Letter of Acceptance, Waiver and Consent, No. 

2007007678201, from the Financial Industry 

Regulatory Authority (‘‘FINRA’’) (issued September 

12, 2010) for a discussion of a ‘‘spoofing’’ case 

involving an illicit high frequency trading strategy. 

Under their ‘‘spoofing’’ strategy, Trillium entered 

numerous layered, non-bona fide market moving 

orders to generate selling or buying interest in 

specific stocks. By entering the non-bona fide 

orders, often in substantial size relative to a stock’s 

overall legitimate pending order volume, Trillium 

traders created a false appearance of buy- or sellside pressure. This trading strategy induced other 

market participants to enter orders to execute 

against limit orders previously entered by the 

Trillium traders. Once their orders were filled, the 

Trillium traders would then immediately cancel 

orders that had only been designed to create the 

false appearance of market activity. The Letter of 

Acceptance, Waiver and Consent and 

accompanying press release from FINRA can be 

accessed at http://www.finra.org/Newsroom/ 

NewsReleases/2010/P12195. 

the commodity and securities markets 

are already familiar with these 

assessments of orderliness in 

connection with issues of market 

manipulation 44 and risk mitigation. The 

Commission believes that market 

participants should assess market 

conditions and consider how their 

trading practices and conduct affect the 

orderly execution of transactions during 

the closing period.45

iii. Spoofing 

1. Comments From ANPR and 

Roundtable 

Roundtable panelists commented that 

there is no commonly-accepted 

definition of ‘‘spoofing’’ throughout the 

industry.46 Some commenters expressed 

a similar concern 47 and requested 

additional Commission guidance that 

any definition of ‘‘spoofing’’ set forth in 

section 4c(a)(5)(C) would not capture 

legitimate trading behavior.48 In 

particular, several comment letters also 

expressed views on whether partial fills 

should be exempt from the definition of 

‘‘spoofing.’’ 49

2. Commission Guidance 

New CEA section 4c(a)(5)(C) prohibits 

any trading, practice, or conduct that 

‘‘is, is of the character of, or is 

commonly known to the trade as, 

‘‘spoofing’’ (bidding or offering with the 

intent to cancel the bid or offer before 

execution).’’ To violate section 

4c(a)(5)(C), a market participant must 

act with some degree of intent, or 

scienter, to engage in the ‘‘spoofing’’ 

trading practices prohibited by section 

4c(a)(5)(C). In the view of the 

Commission, a 4c(a)(5)(C) ‘‘spoofing’’ 

violation requires that a person intend 

to cancel a bid or offer before execution; 

therefore, the Commission believes that 

reckless trading, conduct, or practices 

will not result in violations of section 

4c(a)(5)(C).50 Furthermore, orders, 

modifications, or cancellations will not 

be classified as ‘‘spoofing’’ if they were 

submitted as part of a legitimate, goodfaith attempt to consummate a trade. 

Thus, the legitimate, good-faith 

cancellation of partially filled orders 

would not violate section 4c(a)(5)(C). 

However, a partial fill does not 

automatically exempt activity from 

being classified as ‘‘spoofing.’’ When 

distinguishing between legitimate 

trading involving partial executions and 

‘‘spoofing’’ behavior, the Commission 

will evaluate the market context, the 

person’s pattern of trading activity 

(including fill characteristics), and other 

relevant facts and circumstances. For 

example, if a person’s intent when 

placing a bid or offer was to cancel the 

entire bid or offer prior to execution, 

regardless of whether such bid or offer 

was subsequently filled, that conduct 

may violate section 4c(a)(5)(C). 

Accordingly, under this interpretation, 

section 4c(a)(5)(C) will not capture 

legitimate trading. 

This ‘‘spoofing’’ prohibition covers bid 

and offer activity on all registered 

entities, including all regulated futures, 

options, and swap execution facilities, 

including all bids and offers in pre-open 

periods or during other exchangecontrolled trading halts. ‘‘Spoofing’’ also 

includes, but is not limited to: (i) 

Submitting or cancelling bids or offers 

to overload the quotation system of a 

registered entity, (ii) submitting or 

cancelling bids or offers to delay 

another person’s execution of trades; 

and (iii) submitting or cancelling 

multiple bids or offers to create an 

appearance of false market depth.51

However, the ‘‘spoofing’’ provision is not 

intended to cover non-executable 

market communications such as 

requests for quotes and other authorized 

pre-trade communications. 

As with other intent-based violations, 

the Commission distinguishes between 

legitimate trading and ‘‘spoofing’’ by 

evaluating all of the facts and 

circumstances of each particular case, 

including a person’s trading practices 

and patterns. Notably, a section 

4c(a)(5)(C) violation does not require a 

pattern of activity, even a single 

instance of trading activity can be 

disruptive of fair and equitable trading. 

Issued in Washington, DC, on February 24, 

2011 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Antidisruptive Practices 

Authority—Commission Voting 

Summary; Statements of 

Commissioners; List of Roundtable 

Participants and Commenters 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Chilton and O’Malia 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed interpretive order 

regarding disruptive practices on designated 

contract markets or swap execution facilities. 

Congress expressly prohibited three trading 

practices that it deemed were disruptive of 

fair and equitable trading. Today’s order 

provides additional guidance to market 

participants and the public on the trading, 

practices and conduct that violate these 

statutory provisions. The order also 

addresses comments received by the 

Commission at the December 2nd roundtable 

and in response to the Advanced Notice of 


Emcdonald on DSK2BSOYB1PROD with NOTICES
14948 Federal Register / Vol. 76, No. 53 / Friday, March 18, 2011 / Notices 

Proposed Rulemaking on disruptive trading 

practices. The order addresses the comments 

by clarifying how the Commission will 

interpret and implement the provisions of 

Section 747. I look forward to hearing from 

the public in response to this proposed 

interpretive order. The comment letters and 

staff roundtable were extremely helpful in 

formulating this proposed order. 

Appendix III 

December 2, 2010 CFTC Staff Roundtable on 

Disruptive Trading Practices 

I. Panel One: Opportunities and Challenges 

to Fair and Equitable Trading 

i. Ensuring Fair and Equitable Trading at the 

Close 

ii. Exploring ‘‘the character of’’ Spoofing 

a. Panelists: John Hyland—U.S. Natural 

Gas Fund; Rajiv Fernando—Chopper Trading 

LLC; Adam Nunes—Hudson River Trading 

Group; Cameron Smith—Quantlab Financial, 

LLC; Liam Connell—Allston Trading, LLC; 

Don Wilson—DRW Trading Group; Joel 

Hasbrouck—New York University; Gary 

DeWaal—Newedge USA, LLC; Mark Fisher— 

MBF Clearing Corp; John Lothian—John J. 

Lothian & Company. 

II. Panel Two: Rules ‘‘Reasonably Necessary’’ 

To Prohibit Disruptive Trading 

a. Panelists: Tom Gira—Financial Industry 

Regulatory Authority; Chris Heymeyer— 

National Futures Association; Ike Gibbs— 

ConocoPhillips; Dean Payton—Chicago 

Mercantile Exchange; Mark Fabian— 

IntercontinentalExchange; Joe Mecane—New 

York Stock Exchange; Greg Mocek— 

McDermott Will & Emery; Ken Raisler on 

behalf of Futures Industry Association— 

Sullivan and Cromwell LLP; Micah Green— 

Patton Boggs LLP; Tyson Slocum—Public 

Citizen; Andrew Lo—Massachusetts Institute 

of Technology. 

III. Panel Three: Exchange Perspectives on 

Disruptive Trading; Potential New 

Disruptive Trading Practices 

a. Panelists: Tom Gira—Financial Industry 

Regulatory Authority; Chris Heymeyer— 

National Futures Association; Dean Payton— 

Chicago Mercantile Exchange; Mark Fabian— 

IntercontinentalExchange; Joe Mecane—New 

York Stock Exchange; Andrew Lo— 

Massachusetts Institute of Technology. 

Appendix IV 

Parties Submitting Comment Letters in 

Response to Disruptive Trading Practices 

ANPR 

A. Flachman 

American Petroleum Institute (API) 

Argus Media, Inc. (Argus) 

Better Markets (BM) 

Bix Weir 

Chopper Trading, LLC (Chopper Trading) 

CME Group, Inc. (CME Group) 

Commodity Markets Council (CMC) 

David S. Nichols 

DeWitt Brown 

Edison Electric Institute (EEI) 

Emilie Lauran 

Futures Industry Association (FIA) 

Hess Energy Trading Company, LLC 

(HETCO) 

IntercontinentalExchange, Inc., and ICE 

Futures U.S., Inc. (collectively, ICE) 

International Swaps and Derivatives 

Association, Inc. (ISDA) 

Investment Company Institute (ICI) 

Managed Funds Association (MFA) 

Minneapolis Grain Exchange, Inc. (MGEX) 

Newedge USA, LLC (Newedge USA) 

Nicole Provo 

Peter J. Carini 

Petroleum Marketers Association of America 

(PMAA) 

Rebecca Washington 

Securities Industry and Financial Markets 

Association (SIFMA) 

U.S. Senator Carl Levin 

West Virginia Oil Marketers & Grocers 

Association (OMEGA) 

Working Group of Commercial Energy Firms 

(CEF) 

[FR Doc. 2011–6398 Filed 3–17–11; 8:45 am] 

BILLING CODE 6351–01–P 

CONSUMER PRODUCT SAFETY 

COMMISSION 

Agency Information Collection 

Activities: Proposed Collection; 

Comment Request; Generic Clearance 

for the Collection of Qualitative 

Feedback on Agency Service Delivery 

AGENCY: U.S. Consumer Product Safety 

Commission. 

ACTION: 30-Day notice of submission of 

information collection approval from 

the Office of Management and Budget 

and request for comments. 

SUMMARY: As part of a Federal 

Government-wide effort to streamline 

the process to seek feedback from the 

public on service delivery, the U.S. 

Consumer Product Safety Commission 

(‘‘CPSC,’’ ‘‘Commission,’’ or ‘‘we’’) has 

submitted a Generic Information 

Collection Request (Generic ICR): 

‘‘Generic Clearance for the Collection of 

Qualitative Feedback on Agency Service 

Delivery’’ to OMB for approval under 

the Paperwork Reduction Act (PRA) (44 

U.S.C. 3501 et. seq.). 

DATES: Comments must be submitted 

April 18, 2011. 

ADDRESSES: Written comments may be 

faxed to the Office of Information and 

Regulatory Affairs, OMB, Attn: CPSC 

Desk Officer, FAX: 202–395–6974, or emailed to 

oira_submission@omb.eop.gov. All 

comments should be identified by the 

CPSC Docket No. CPSC [ ] and the title 

‘‘Generic Clearance for the Collection of 

Qualitative Feedback on Agency Service 

Delivery.’’ The written comments should 

also be submitted to the CPSC, 

identified by Docket No. CPSC [ ], by 

any of the following methods: Submit 

electronic comments in the following 

way: Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

To ensure timely processing of 

comments, the Commission is no longer 

accepting comments submitted by 

electronic mail (e-mail) except through 

http://www.regulations.gov. 

Submit written submissions in the 

following way: 

Mail/Hand delivery/Courier (for 

paper, disk, or CD–ROM submissions), 

preferably in five copies, to: Office of 

the Secretary, U.S. Consumer Product 

Safety Commission, Room 502, 4330 

East West Highway, Bethesda, MD 

20814; telephone (301) 504–7923. 

Instructions: All submissions received 

must include the agency name and 

docket number for this notice. All 

comments received may be posted 

without change, including any personal 

identifiers, contact information, or other 

personal information provided, to 

http://www.regulations.gov. Do not 

submit confidential business 

information, trade secret information, or 

other sensitive or protected information 

electronically. Such information should 

be submitted in writing. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Linda Glatz, Division of Policy and 

Planning, Office of Information 

Technology and Technology Services, 

U.S. Consumer Product Safety 

Commission, 4330 East West Highway, 

Bethesda, MD 20814 telephone: 301– 

504–7671 or e-mail: lglatz@cpsc.gov. 

SUPPLEMENTARY INFORMATION: In the 

Federal Register of December 22, 2010 

(75 FR 80542), the Office of 

Management and Budget (OMB) 

published a notice (‘‘OMB notice’’) 

stating that, as part of a Federal 

Government-wide effort to streamline 

the process to seek feedback from the 

public on service delivery, OMB is 

coordinating the development of a 

proposed Generic Information 

Collection Request titled, ‘‘Generic 

Clearance for the Collection of 

Qualitative Feedback on Agency Service 

Delivery’’ for approval under the 

Paperwork Reduction Act (PRA) (44 

U.S.C. 3501 et. seq.). The OMB notice 

announced that agencies (including the 

CPSC) intend to submit this collection 

to OMB for approval and also invited 

comments on specific aspects for the 

proposed information collection. The 

OMB notice also provided an estimated 

information collection burden and 

stated that agencies would provide more 


Emcdonald on DSK2BSOYB1PROD with NOTICES