[Federal Register Volume 74, Number 154 (Wednesday, August 12, 2009)]
[Rules and Regulations]
[Pages 40686-40706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-19257]



[[Page 40685]]

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Part III





Federal Trade Commission





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16 CFR Part 317



Prohibitions on Market Manipulation; Final Rule

Federal Register / Vol. 74, No. 154 / Wednesday, August 12, 2009 / 
Rules and Regulations

[[Page 40686]]


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FEDERAL TRADE COMMISSION

16 CFR Part 317

[Project No. P082900]
RIN 3084-AB12


Prohibitions on Market Manipulation

AGENCY: Federal Trade Commission.

ACTION: Final Rule.

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SUMMARY: In this document, the Federal Trade Commission (``Commission'' 
or ``FTC'') issues its Statement of Basis and Purpose (``SBP'') and 
final Rule, pursuant to Section 811 of Subtitle B of Title VIII of The 
Energy Independence and Security Act of 2007 (``EISA'').\1\ The final 
Rule prohibits any person, directly or indirectly, in connection with 
the purchase or sale of crude oil, gasoline, or petroleum distillates 
at wholesale, from knowingly engaging in any act, practice, or course 
of business - including the making of any untrue statement of material 
fact - that operates or would operate as a fraud or deceit upon any 
person, or intentionally failing to state a material fact that under 
the circumstances renders a statement made by such person misleading, 
provided that such omission distorts or is likely to distort market 
conditions for any such product.
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    \1\ Section 811 is part of Subtitle B of Title VIII of EISA, 
which has been codified at 42 U.S.C. 17301-17305.

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EFFECTIVE DATE: November 4, 2009.

ADDRESSES: Requests for copies of the final Rule and the SBP should be 
sent to: Public Records Branch, Room 130, Federal Trade Commission, 600 
Pennsylvania Avenue, N.W., Washington, DC 20580. The complete record of 
this proceeding is also available at that address. Relevant portions of 
the proceeding, including the final Rule and the SBP, are available at 
(www.ftc.gov).

FOR FURTHER INFORMATION CONTACT: Patricia V. Galvan, Deputy Assistant 
Director, Bureau of Competition, Federal Trade Commission, 600 
Pennsylvania Avenue, N.W., Washington, DC 20580, (202) 326-3772.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Background

    EISA became law on December 19, 2007.\2\ Subtitle B of Title VIII 
of EISA targets market manipulation in connection with the purchase or 
sale of crude oil, gasoline, or petroleum distillates at wholesale, and 
the reporting of false or misleading information related to the 
wholesale price of those products. Specifically, Section 811 prohibits 
``any person'' from ``directly or indirectly'': (1) using or employing 
``any manipulative or deceptive device or contrivance,'' (2) ``in 
connection with the purchase or sale of crude oil gasoline or petroleum 
distillates at wholesale,'' (3) that violates a rule or regulation that 
the FTC ``may prescribe as necessary or appropriate in the public 
interest or for the protection of United States citizens.''\3\
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    \2\ 42 U.S.C. 17001-17386.
    \3\ 42 U.S.C. 17301.
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    Section 812 prohibits ``any person'' from reporting information 
that is ``required by law to be reported'' - and that is ``related to 
the wholesale price of crude oil gasoline or petroleum distillates'' - 
to a federal department or agency if the person: (1) ``knew, or 
reasonably should have known, [that] the information [was] false or 
misleading;'' and (2) intended such false or misleading information 
``to affect data compiled by the department or agency for statistical 
or analytical purposes with respect to the market for crude oil, 
gasoline, or petroleum distillates.''\4\
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    \4\ 42 U.S.C. 17302.
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    Subtitle B also contains three additional sections that address, 
respectively, enforcement of the Subtitle (Section 813),\5\ penalties 
for violations of Section 812 or any FTC rule promulgated pursuant to 
Section 811 (Section 814),\6\ and the interplay between Subtitle B and 
existing laws (Section 815).\7\
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    \5\ Section 813(a) provides that Subtitle B shall be enforced by 
the FTC ``in the same manner, by the same means, and with the same 
jurisdiction as though all applicable terms of the Federal Trade 
Commission Act [(``FTC Act'')] (15 U.S.C. 41 et seq.) were 
incorporated into and made a part of [Subtitle B].'' Section 813(b) 
provides that a violation of any provision of Subtitle B ``shall be 
treated as an unfair or deceptive act or practice proscribed under a 
rule issued under [S]ection 18(a)(1)(B) of the [FTC Act] (15 U.S.C. 
57a(a)(1)(B)).'' 42 U.S.C. 17303.
    \6\ Section 814(a) of Subtitle B provides that - ``[i]n addition 
to any penalty applicable under the [FTC Act]'' - ``any supplier 
that violates [S]ection 811 or 812 shall be punishable by a civil 
penalty of not more than $1,000,000.'' Further, Section 814(c) 
provides that ``each day of a continuing violation shall be 
considered a separate violation.'' 42 U.S.C. 17304.
    \7\ Section 815(a) provides that nothing in Subtitle B ``limits 
or affects'' Commission authority ``to bring an enforcement action 
or take any other measure'' under the FTC Act or ``any other 
provision of law.'' Section 815(b) provides that ``[n]othing in 
[Subtitle B] shall be construed to modify, impair, or supersede the 
operation'' of: (1) any of the antitrust laws (as defined in Section 
1(a) of the Clayton Act, 15 U.S.C. 12(a)), or (2) Section 5 of the 
FTC Act ``to the extent that . . . [S]ection 5 applies to unfair 
methods of competition.'' Section 815(c) provides that nothing in 
Subtitle B ``preempts any State law.'' 42 U.S.C. 17305.
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    After considering the rulemaking record in this proceeding, the 
Commission adopts the final Rule pursuant to its authority under 
Section 811. The final Rule prohibits any person, directly or 
indirectly, in connection with the purchase or sale of crude oil, 
gasoline, or petroleum distillates at wholesale, from (a) knowingly 
engaging in any act, practice, or course of business - including the 
making of any untrue statement of material fact - that operates or 
would operate as a fraud or deceit upon any person, or (b) 
intentionally failing to state a material fact that under the 
circumstances renders a statement made by such person misleading, 
provided that such omission distorts or is likely to distort market 
conditions for any such product.\8\
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    \8\ As the Commission stated in each of the prior Notices issued 
in this proceeding, the phrase ``crude oil gasoline or petroleum 
distillates'' is used without commas in Section 811 (as well as in 
the first clause of Section 812), while the phrase is used with 
commas in Section 812(3): ``crude oil, gasoline, or petroleum 
distillates.'' The absence of commas is obviously a non-substantive, 
typographical error; therefore, the Commission reads all parts of 
both sections to cover all three types of products: crude oil, 
gasoline, and petroleum distillates. See FTC, Prohibitions On Market 
Manipulation and False Information in Subtitle B of The Energy 
Independence and Security Act of 2007, 73 FR 25614, 25621 n.59 (May 
7, 2008); 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 48317, 48320 n.40 (Aug. 19, 2008); 
FTC, Prohibitions On Market Manipulation in Subtitle B of Title VIII 
of The Energy Independence and Security Act of 2007, 74 FR 18304, 
18305 n.11 (Apr. 22, 2009).
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II. The Rulemaking Proceeding

    The rulemaking proceeding\9\ began with the publication of an 
Advance Notice of Proposed Rulemaking (``ANPR'') on May 7, 2008.\10\ In 
the ANPR, the Commission solicited comments on whether it should 
promulgate a rule under Section 811, and, if so, the appropriate scope 
and content of such a rule.\11\ In response to the ANPR, the Commission 
received 155 comments from interested parties.\12\

[[Page 40687]]

Commenters expressed differing views regarding the desirability of and 
the appropriate legal basis for any such rule.\13\ They also proposed a 
variety of models upon which to base a market manipulation rule, 
including those used by other federal agencies pursuant to each 
agency's respective market manipulation authority,\14\ such as the 
Securities and Exchange Commission (``SEC''),\15\ the Federal Energy 
Regulatory Commission (``FERC''),\16\ and the Commodity Futures Trading 
Commission (``CFTC'').\17\
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    \9\ Rulemaking documents are available at: (http://www.ftc.gov/ftc/oilgas/rules.htm).
    \10\ 73 FR 25614.
    \11\ 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/080519ampetrolinstreqeot.pdf); 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 
32259 (June 6, 2008).
    \12\ Attachment D contains a list of commenters who submitted 
comments on the ANPR. Electronic versions of the comments are 
available at: (http://www.ftc.gov/os/comments/marketmanipulation/index.shtm). In calculating the number of comments submitted in 
response to a Notice issued in this proceeding, the Commission 
treated multiple filings by the same commenter, or a comment filed 
jointly by a group of commenters, as a single comment.
    \13\ Section II.A. of the Notice of Proposed Rulemaking 
(``NPRM'') discusses commenters' views and the Commission's response 
to commenters on the propriety of a Section 811 rule. See 73 FR at 
48320-23.
    \14\ Section III. of the ANPR provides an overview of the 
antecedents of Section 811 and relevant legal precedent. See 73 FR 
at 25616-19. Section I.B. of the NPRM describes ANPR commenters' 
views on the appropriate model for a Section 811 rule. See 73 FR at 
48319 & nn.31-32.
    \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.
    \17\ See Commodity Exchange Act (``CEA'') 9(a)(2), 7 U.S.C. 
13(a)(2).
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    After reviewing the ANPR comments, on August 19, 2008, the 
Commission published a Notice of Proposed Rulemaking (``NPRM'')\18\ 
setting forth the text of a proposed Rule modeled on SEC Rule 10b-5 and 
inviting written comments on issues raised by the proposed Rule.\19\ 
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. In response to the 
NPRM, the Commission received 34 comments from interested parties.\20\ 
On November 6, 2008, Commission staff held a one-day public workshop on 
the proposed Rule.\21\ Commenters and workshop participants presented 
views concerning several key issues relating to the proposed Rule, 
particularly regarding the application of a SEC Rule 10b-5 model to 
wholesale petroleum markets and the relevance of securities law to the 
petroleum industry.\22\
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    \18\ 73 FR 48317.
    \19\ 73 FR at 48332-34. In response to a petition from a major 
trade association, the Commission extended the deadline for 
submission of comments on the NPRM from September 18, 2008, to 
October 17, 2008. 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.pdf); 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).
    \20\ Attachment B contains a list of commenters who responded to 
the NPRM.
    \21\ Attachment C contains a list of participants in the 
workshop. 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, is available at: (http://www.ftc.gov/bcp/workshops/marketmanipulation/index.shtml).
    \22\ Section IV.A. of the Revised Notice of Proposed Rulemaking 
(``RNPRM'') provides an overview of NPRM commenters' and workshop 
participants' views regarding the proposed Rule. See 74 FR at 18308-
10.
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    The Commission published a Revised Notice of Proposed Rulemaking 
(``RNPRM'') setting forth a revised proposed Rule on April 22, 
2009,\23\ and describing certain modifications to the initially 
proposed Rule and the basis for the modifications. As with the 
initially proposed Rule, the Commission based the revised proposed Rule 
on the anti-fraud model of SEC Rule 10b-5, but modified the revised 
proposed Rule to accommodate differences between securities markets and 
wholesale petroleum markets. The RNPRM also set forth questions and 
alternative rule language designed to elicit further views from 
interested parties. In response to the RNPRM, the Commission received 
17 comments from interested parties, including a consumer advocacy 
group, a United States Senator, an academic, a federal agency, industry 
members, energy news and price reporting organizations, and trade and 
bar associations.\24\
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    \23\ 74 FR 18304.
    \24\ Attachment A contains a list of commenters who submitted 
comments on the RNPRM, together with the abbreviations used to 
identify each commenter referenced in this SBP. All commenter 
references are to those comments submitted in response to the RNPRM, 
unless otherwise noted.
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    The Commission has reviewed the entire record in this proceeding, 
including comments submitted in response to the RNPRM. Based on this 
review, as well as its extensive petroleum industry law enforcement 
experience, the Commission hereby adopts a final Rule that is virtually 
identical to the revised proposed Rule. The Commission's analysis of 
certain commenter proposals and its basis for adopting each of the 
final Rule's provisions are detailed below.

III. Legal Basis for the Rule

    Section 811 of EISA provides the legal basis for the final Rule. 
Section 811 prohibits ``any person'' from ``directly or indirectly'' 
using or employing ``any manipulative or deceptive device or 
contrivance'' - in connection with the purchase or sale of crude oil, 
gasoline, or petroleum distillates at wholesale - that violates a rule 
or regulation that the Commission ``may prescribe as necessary or 
appropriate in the public interest or for the protection of United 
States citizens.''\25\ In enacting Section 811, Congress specifically 
authorized the Commission to determine whether a rule prohibiting 
manipulative conduct in wholesale petroleum markets would be 
appropriate and in the public interest. As the Commission explained in 
the NPRM in this proceeding:
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    \25\ 42 U.S.C. 17301. Section 811 states:
    It is unlawful for any person, directly or indirectly, to use or 
employ, in connection with the purchase or sale of crude oil[,] 
gasoline[,] or petroleum distillates at wholesale, any manipulative 
or deceptive device or contrivance, in contravention of such rules 
and regulations as the Federal Trade Commission may prescribe as 
necessary or appropriate in the public interest or for the 
protection of United States citizens.
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 [T]he initial inquiry in determining whether it should promulgate a 
rule requires understanding the phrase ``necessary or appropriate in 
the public interest or for the protection of United States citizens.'' 
The use of the disjunctive ``or'' in the first clause of this phrase 
indicates that the Commission would be within its [authority] to 
promulgate a rule that is either: (1) ``necessary . . . in the public 
interest or for the protection of United States citizens,''or (2) 
``appropriate in the public interest or for the protection of United 
States citizens.'' Similarly, the Commission need only show that a rule 
would be either ``in the public interest'' or ``for the protection of 
United States citizens.'' Thus, the Commission could proceed in its 
rulemaking if, at a minimum, the endeavor is ``appropriate . . . in the 
public interest.''\26\
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    \26\ 73 FR at 48320-21.
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    The Commission has determined that the final Rule - which defines 
for market participants the Section 811 statutory prohibition against 
using or employing ``any manipulative or deceptive device or 
contrivance'' - is appropriate and in the public interest. The prices 
of petroleum products significantly affect the daily lives of American 
consumers and the daily operations of American businesses.\27\

[[Page 40688]]

Because fraudulent or deceptive conduct within wholesale petroleum 
markets injects false information into the market process, it distorts 
market data and thus undermines the ability of consumers and businesses 
to make purchase and sales decisions congruent with their economic 
objectives.\28\ As a consequence, decision-making risks and attendant 
costs increase, and economic efficiency declines in the overall 
economy. Fraudulent or deceptive conduct within wholesale petroleum 
markets thus can have wide ranging ramifications throughout the United 
States economy.\29\ For these reasons, the Commission has determined to 
issue the final Rule.\30\
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    \27\ ``Perhaps no other industry's performance is so visibly and 
deeply felt.'' FTC Bureau of Economics, The Petroleum Industry: 
Mergers, Structural Change, and Antitrust Enforcement, at 1 (Aug. 
2004), available at (http://www.ftc.gov/os/2004/08/040813mergersinpetrolberpt.pdf).
    \28\ Markets absorb all available information - good or bad - 
and continually adjust price signals and other market data to any 
new information. When economic actors can presume that market data 
have not been artificially manipulated, they can rely on that data 
to make decisions that they believe will advance their individual 
economic objectives. Fraudulent or deceptive conduct taints the 
integrity of the market process.
    \29\ Commenters recognized the negative effects of fraud and 
deceit in wholesale petroleum markets. See, e.g., CAPP, ANPR, at 1 
(``CAPP recognizes that fraud and manipulation pose a potential 
threat to the successful and efficient functioning of petroleum 
markets in North America.'' ); MFA, ANPR, at 1 (``Price manipulation 
has a corrosive effect on the proper functioning of any market.'' ); 
API, ANPR, at 50 (``We agree that the provision of false or 
misleading pricing information to private reporting entities could 
be problematic.'' ); Sutherland, ANPR, at 3 (``[O]il marketers and 
traders are the first victims of unfair business practices. They, 
therefore, support efforts by Congress to deter manipulation and the 
use of deceptive devices.'' ); see also MS AG, NPRM, at 2 (``The 
proposed Rule will benefit consumers significantly because market 
manipulation can artificially inflate prices of petroleum products 
and cause consumers to pay more for essential goods, such as 
gasoline.'' ).
    \30\ See 73 FR at 48321 (noting that ``a rule that allows the 
Commission to guard against conduct that undermines the integrity of 
the petroleum market would be in the public interest'').
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    Well-established statutory, judicial, and regulatory constructs and 
principles - and the language of Section 811 itself - strongly support 
the final Rule. As the Commission noted in the ANPR, the Section 811 
prohibition of the use or employment of any ``manipulative or deceptive 
device or contrivance'' is virtually identical to the prohibition in 
Section 10(b) of the Securities Exchange Act of 1934 (``SEA'').\31\ 
Specifically, SEA Section 10(b) prohibits the use or employment of:
 any manipulative or deceptive device or contrivance in contravention 
of such rules as the [SEC] may prescribe as necessary or appropriate in 
the public interest or for the protection of investors.\32\
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    \31\ 15 U.S.C. 78j(b).
    \32\ Id. (emphasis added). See generally Ernst & Ernst v. 
Hochfelder, 425 U.S. 185, 197 (1976).
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    Relying upon SEA Section 10(b),\33\ the SEC promulgated its anti-
fraud rule, Rule 10b-5, making it unlawful for any person:
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    \33\ The language from the Securities Act of 1933 also supported 
issuance of SEC Rule 10b-5. Section 17(a) of the Securities Act of 
1933 originally prohibited:
    any person in the sale of securities by the use of any means or 
instruments of transportation or communication in interstate 
commerce or by the use of the mails, directly or indirectly -
    (1) to employ any device, scheme or artifice to defraud, or
    (2) to obtain money or property by means of any untrue statement 
of a material fact or any omission 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
    (3) to engage in any transaction, practice, or course of 
business which operates or would operate as a fraud or deceit upon 
the purchaser.
    Through the promulgation of Rule 10b-5, the SEC intended, inter 
alia, to apply the same prohibitions contained in Section 17(a) of 
the 1933 Act to purchasers as well as to sellers. Birnbaum v. 
Newport Steel Corp., 193 F.2d 461, 463 (2d Cir. 1952). Amended 
several times over the intervening years, the current text of 
Section 17(a) is codified at 15 U.S.C. 77q(a).
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    (a) To 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 which 
operates or would operate as a fraud or deceit upon any person. . . .
    in connection with the purchase or sale of any security.\34\
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    \34\ 17 CFR 240.10b-5. In addition, the SEC's rules under SEA 
Section 10(b) prohibit a number of specific practices in specific 
circumstances. See 17 CFR 240.10b-1 through 240.10b-18.
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    In examining SEA Section 10(b) and SEC Rule 10b-5, the Supreme 
Court has stated that the statute, as enforced through the rule, 
prohibits ``intentional or willful conduct designed to deceive or 
defraud investors by controlling or artificially affecting the price of 
securities.''\35\
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    \35\ Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 6 
(1985) (quoting Ernst & Ernst, 425 U.S. at 199)) (emphasis in 
original). The Supreme Court has defined ``the term [manipulation to 
refer] generally to practices, such as wash sales, matched orders, 
or rigged prices, that are intended to mislead investors by 
artificially affecting market activity.'' Santa Fe Indus., Inc. v. 
Green, 430 U.S. 462, 476 (1977). ``A matched order is the entering 
of a sell (or buy) order knowing that a corresponding buy (or sell) 
order of substantially the same size, at substantially the same time 
and at substantially the same price either has been or will be 
entered. A wash trade [or wash sale] is a securities transaction 
which involves no change in the beneficial ownership of the 
security. Parking [another form of manipulation] is the sale of 
securities subject to an agreement or understanding that the 
securities will be repurchased by the seller at a later time and at 
a price which leaves the economic risk on the seller.'' SEC v. 
Farni, Exchange Act Release No. 39133 (Sept. 25, 1997), available at 
(http://www.sec.gov/litigation/admin/3439133.txt).
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    The FERC relied upon a statutory framework similar to the 
securities laws to promulgate largely identical rules prohibiting 
natural gas market manipulation and electric energy market 
manipulation.\36\ The Energy Policy Act of 2005 amended the Natural Gas 
Act and the Federal Power Act to prohibit precisely the same type of 
conduct as SEA Section 10(b); that is, the use or employment of ``any 
manipulative or deceptive device or contrivance (as those terms are 
used in [SEA Section 10(b)] . . .)'' in natural gas and electricity 
markets.\37\
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    \36\ See FERC, Prohibition of Energy Market Manipulation, 71 FR 
4244, 4246 (Jan. 26, 2006) (final anti-manipulation Rule).
    \37\ Section 4A of the Natural Gas Act, 15 U.S.C. 717c-1; 
Section 222 of the Federal Power Act, 16 U.S.C. 824v.
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    Similar statutory and regulatory frameworks prohibit the use of 
manipulative practices in other parts of the economy. The Commodity 
Exchange Act (``CEA'') is intended, among other things, ``to deter and 
prevent price manipulation or any other disruptions to market integrity 
. . . .''\38\ The CEA provides that the CFTC possesses jurisdiction for 
``transactions involving contracts of sale of a commodity for future 
delivery, traded or executed on a contract market . . . or derivatives 
transaction execution facility . . . or any other board of trade, 
exchange, or market . . . .''\39\ It further provides for CFTC anti-
manipulation authority over cash and physical transactions, as well as 
certain derivatives transactions relating to securities.\40\
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    \38\ 7 U.S.C. 5(b); accord Merrill Lynch, Pierce, Fenner & 
Smith, Inc. v. Curran, 456 U.S. 353, 372 n.50 (1982).
    \39\ 7 U.S.C. 2(a)(1)(A).
    \40\ 7 U.S.C. 2(a)(1)(A), (C)-(D).
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    The SEC, the FERC, and the CFTC all have taken action against 
market manipulation pursuant to the authorities described above. For 
example, the CFTC has initiated law enforcement actions against 
defendants for submitting false statements to private reporting 
services, government agencies, and the news media, and for engaging in 
trading practices that give the false appearance of trading 
activity.\41\ The FERC similarly has found

[[Page 40689]]

evidence of practices such as false reporting to price index 
publishers.\42\ In addition, the SEC has pursued law enforcement 
actions against actors that have disseminated false information to the 
market, and against actors that have engaged in conduct creating the 
false appearance of trading activity.\43\
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    \41\ See, e.g., In the Matter of CMS Mktg. Servs. & Trading Co., 
Comm. Fut. L. Rep. (CCH) [par] 29,634 (C.F.T.C. Nov. 25, 2003) 
(finding liability for the submission of false information to 
private reporting services); see also Wilson v. CFTC, 322 F.3d 555, 
560-61 (8th Cir. 2003) (affirming the CFTC's order finding defendant 
engaged in wash sales and imposing sanctions); United States v. 
Reliant Energy Servs., Inc., 420 F. Supp. 2d 1043, 1059-60 (N.D. 
Cal. 2006) (finding allegations that defendant withheld supply from 
the market while intentionally disseminating false and misleading 
rumors and information to the California Independent System 
Operator, brokers, and other traders regarding defendant's power 
generation plants were sufficient to withstand a motion to dismiss 
for failure to state a claim of manipulation).
    \42\ See, e.g., FERC, Final Report on Price Manipulation in 
Western Markets, Dkt. No. PA02-2-000 (Mar. 2003), available at 
(http://www.ferc.gov/industries/electric/indus-act/wec.asp). The 
FERC issued a Policy Statement and promulgated regulations to 
address price formation concerns that resulted from the reporting of 
false information to price index publishers. See FERC, Transparency 
Provisions of Section 23 of the Natural Gas Act, 73 FR 1014 (Jan. 4, 
2008); FERC, Report on Natural Gas and Electricity Price Indices, 
Dkt. No. PL03-3-004, AD03-7-004 (May 5, 2004), available at (http://www.ferc.gov/EventCalendar/Files/20040505135203-Report-Price-Indices.pdf); FERC, Policy Statement on Natural Gas and Electric 
Price Indices, 104 F.E.R.C. ? 61,121 (July 24, 2003).
    \43\ See, e.g., SEC v. Rana Research, Inc., 8 F.3d 1358, 1361, 
1364 (9th Cir. 1993) (finding that the defendant's press release 
contained materially false and misleading statements); SEC v. 
Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997) (finding defendant 
liable under SEC Rule 10b-5 when defendant disseminated false 
information to the market through press releases and SEC filings).
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    When Congress authorized the FTC to prohibit the use or employment 
of manipulative or deceptive devices or contrivances, it empowered the 
Commission to rely upon the foregoing statutory, judicial, and 
regulatory principles to promulgate its Rule.\44\ The final Rule, based 
at least in part on SEC Rule 10b-5, will prohibit practices that inject 
false information into transactions. The final Rule thereby helps to 
protect the integrity of the price discovery process in wholesale 
petroleum markets. Moreover, the final Rule will prevent the same types 
of fraudulent or deceptive practices that the SEC, the CFTC, and the 
FERC have pursued in the markets they respectively regulate and will 
strike at the core of what EISA explicitly proscribes - market 
manipulation.\45\
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    \44\ The Commission believes that the language of Section 811 
reflects congressional intent that the Commission look to SEC Rule 
10b-5 in crafting a market manipulation rule. See Evans v. United 
States, 504 U.S. 255, 260 n.3 (1992) (```[I]f a word is obviously 
transplanted from another legal source, whether the common law or 
legislation, it brings the old soil with it.''' (quoting Felix 
Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. 
L. Rev. 527, 537 (1947))); Morissette v. United States, 342 U.S. 
246, 263 (1952) (noting where Congress borrows terms of art it 
``presumably knows and adopts the cluster of ideas that were 
attached to each borrowed word''); see also Nat'l Treasury Employees 
Union v. Chertoff, 452 F.3d 839, 857 (D.C. Cir. 2006) (stating that 
``[t]here is a presumption that Congress uses the same term 
consistently in different statutes.'' ).
    \45\ 73 FR at 48322.
---------------------------------------------------------------------------

    This conclusion finds support in the rulemaking record. Throughout 
the proceeding, most commenters supported the FTC's proposal to 
promulgate a market manipulation rule,\46\ and most RNPRM commenters 
that addressed the issue opined that the revised proposed Rule would be 
appropriate and in the public interest.\47\ The Commission has 
determined, therefore, that the final Rule - which at its most 
fundamental level prohibits fraudulent or deceptive conduct - is 
appropriate and in the public interest.
---------------------------------------------------------------------------

    \46\ Most NPRM commenters who addressed the initially proposed 
Rule opined that it would be appropriate. See, e.g., ATA, NPRM, at 2 
(supporting the proposed Rule ``as an additional tool to help 
preserve the integrity of vital energy markets''); IPMA, NPRM, at 4 
(``The proposed Rule does meet the rulemaking standard that it is 
`necessary or appropriate in the public interest or for the 
protection of United States[] citizens.''' ); see also MFA, ANPR, at 
4-5 (``We believe the Commission should adopt appropriate rules 
prohibiting manipulation in the purchase and sale of crude oil, 
gasoline and petroleum distillates at wholesale . . . .'' ).
    \47\ As with prior comments submitted in this proceeding, most 
RNPRM commenters directed their statements to the application of a 
Section 811 rule, rather than to whether the revised proposed Rule 
met Section 811's rulemaking standard. See also 74 FR at 18308 n.40 
(noting that most NPRM commenters focused their comments on the 
application of the proposed Rule). See, e.g., CAPP at 1-2 (opining 
that the modifications to the revised proposed Rule - including, in 
particular, the adoption of an express scienter standard and the 
inclusion of market conditions language in the omissions section - 
ensured that the Rule ``would serve the public interest''); CFA at 4 
(stating that the revised proposed Rule ``promotes the public 
interest and is perfectly consistent with the legislative 
language''); PMAA at 3 (noting that the revisions to the revised 
proposed Rule are ``appropriate''); see also ATAA at 2-3 
(``applaud[ing] the Commission's decision to exercise its rulemaking 
authority,'' arguing that ``[m]arket manipulation, fraud, and 
deceptive practices distort the market, inflate prices, and inure to 
the detriment of the entire economy''). But see API at 2, 4-5 
(disagreeing that a Section 811 rule would be appropriate because, 
in its view, a weighing of ``likely benefits and costs supports a 
decision not to promulgate any rule at this time'').
---------------------------------------------------------------------------

IV. Discussion of the Final Rule

A. Overview

    After reviewing the full rulemaking record developed in this 
proceeding, the Commission has concluded that promulgating a final Rule 
that is virtually identical to the revised proposed Rule best reflects 
congressional intent while accommodating the specific characteristics 
of wholesale petroleum markets. The final Rule therefore differs from 
the revised proposed Rule only as a consequence of two clarifying 
changes.\48\ In the RNPRM, the Commission tentatively determined to 
modify the proscriptions of the initially proposed Rule - which were 
nearly identical to SEC Rule 10b-5 - in order to account for 
differences between wholesale petroleum markets and securities 
markets.\49\ The Commission has now concluded that the revised proposed 
Rule, promulgated as the final Rule, would prevent manipulative conduct 
in wholesale petroleum markets while limiting attendant costs, a 
primary concern for many industry commenters.
---------------------------------------------------------------------------

    \48\ In final Rule Section 317.3(b), the Commission has 
substituted the phrase ``is likely'' for the word ``tends'' in 
revised proposed Rule Section 317.3(b). See Section IV.D.3.b. below 
for further discussion. The Commission also has modified the 
definition of ``knowingly.'' See Section IV.C.3. below for further 
discussion.
    \49\ See 74 FR at 18310.
---------------------------------------------------------------------------

    In tailoring the final Rule, the Commission has accounted for 
Section 811's direction that the final Rule be an anti-fraud rule 
guided by the principles of SEC Rule 10b-5 and relevant precedent. 
These principles focus on the protection of market integrity.\50\ The 
rulemaking record reflects support for an anti-fraud standard.\51\ 
Although the conduct prohibition in Section 811 is identical to 
language found in SEA Section 10(b),\52\ the inclusion of the

[[Page 40690]]

language ``as necessary or appropriate'' in Section 811 provides the 
Commission with flexibility - within the framework of an anti-fraud 
model - to use its expertise to tailor the Rule to the characteristics 
of wholesale petroleum markets.
---------------------------------------------------------------------------

    \50\ See United States v. Russo, 74 F.3d 1383, 1391 (2d Cir. 
1996) (``[F]rauds which `mislead[] the general public as to the 
market value of securities' and `affect the integrity of the 
securities markets' . . . fall well within [Rule 10b-5].'' (quoting 
In re Ames Dep't Stores, Inc. Stock Litig., 991 F.2d 953, 966 (2d 
Cir. 1993))) (citation omitted); see also Superintendent of Ins. of 
N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6, 12 (1971) (stating that 
```preserving the integrity of securities markets''' is one of the 
purposes of Section 10(b) (quoting Superintendent of Ins. of N.Y. v. 
Bankers Life & Cas. Co., 430 F.2d 355, 261 (2d Cir. 1970))).
    \51\ See, e.g., API at 29 (``The proper objective of any rule 
issued under Section 811 is to cover deceptive conduct . . . .'' ); 
CAPP at 2 (``Manipulative conduct that makes use of false 
information in market transactions does not constitute routine or 
acceptable commercial behavior, and is reasonably within the scope 
of prohibited conduct.'' ); CFDR (Mills), Tr. at 38-39 (``From my 
point of view, fraud is a good demarcation for any antimanipulation 
rule, because it provides a basis by which people can govern 
themselves and know with some understanding of what kind of conduct 
is going to violate a rule or not.'' ); PMAA (Bassman), Tr. at 47 
(``[U]sing fraud . . . is very clear, because none of the people 
operating in this market operate without the benefit of legal 
counsel. Any legal counsel understands the concept of fraud, and 
fraud does belong here.'' ); NPRA, NPRM, at 2 (``NPRA endorses the 
FTC's determination that implementation of the EISA should be 
accomplished through a rule against fraud and deception that harms 
the competitive functioning of wholesale petroleum markets and, 
ultimately, consumers.'' ).
    \52\ See 15 U.S.C. 78j(b). As noted above, the anti-manipulation 
authority granted to the FERC also contains the identical conduct 
prohibition, and the statute granting that authority explicitly 
directed the FERC to rely upon SEA Section 10(b) in defining the 
terms ``manipulative or deceptive device or contrivance.'' See 15 
U.S.C. 717c-1; 16 U.S.C. 824v.
---------------------------------------------------------------------------

    The Commission therefore has promulgated an anti-fraud Rule that, 
although modeled on SEC Rule 10b-5, is tailored to account for 
significant differences between wholesale petroleum markets and 
securities markets.\53\ In this regard, the Commission has determined 
that the level of needed protection against fraud or deceit in 
wholesale petroleum market transactions should take into account that 
market participants typically are sophisticated and experienced 
commercial actors who are able to engage in a substantial amount of 
self protection, including filling in relevant information gaps. By 
contrast, small individual retail securities investors often possess 
less complete information than counter-parties such as securities 
brokers - and may also be significantly less sophisticated in 
discerning relevant information gaps. Additionally, the regulatory 
system overlaying securities markets, of which SEC Rule 10b-5 is a 
part, prescribes more comprehensive requirements - including in 
particular more comprehensive disclosure requirements - than the 
regulatory system applicable to wholesale petroleum markets.\54\ 
Accounting for these contextual differences in crafting the final Rule, 
the Commission has sought to achieve the appropriate balance between 
the flexibility needed to prohibit fraud-based market manipulation 
without burdening legitimate business activity. To achieve this result, 
the final Rule differs from the initially proposed Rule in three 
significant ways.
---------------------------------------------------------------------------

    \53\ Some commenters argued that the final Rule should extend to 
conduct such as speculative activity or the unilateral exercise of 
market power, because in their view such conduct is inherently 
manipulative. See, e.g., CFA at 8 (arguing that the Commission 
``could have considered the exercise of market power and excessive 
speculation as manipulation'' because they ``have no economic 
justification''); Greenberger at 1 (opining that the proposed Rule 
could offer a tough enforcement mechanism against speculative 
activity); Senator Cantwell at 2-3 (asserting that Congress intended 
for the FTC's rule to reach a broad range of conduct, including the 
withholding of supply); Pirrong, NPRM, at 2 (arguing that the 
proposed Rule should not focus on fraud or deceit, but rather on the 
exercise of market power). However, the rulemaking record does not 
support extending the final Rule to cover such conduct, except to 
the extent that the practices used are part of a course of conduct 
that otherwise violates the final Rule.
    \54\ Many commenters, in this regard, urged the Commission to be 
cognizant of the realities of normal business practice within 
wholesale petroleum markets so as to avoid crafting a rule that 
unduly chills legitimate business conduct. See ISDA at 5-6; API at 
32; Sutherland at 3. For example, commenters asserted that 
discerning an unlawful material omission in the context of complex 
wholesale petroleum market transactions would be far more difficult 
than in securities markets. See CFDR at 4; API at 15.
---------------------------------------------------------------------------

    First, the final Rule, like the revised proposed Rule, comprises a 
two-part conduct prohibition in contrast to the three-part conduct 
prohibition in the initially proposed Rule. The consolidation of parts 
``more clearly and precisely denote[s] the unlawful conduct [that the 
Rule] prohibits.''\55\ Second, each paragraph of the conduct 
prohibition in the final Rule contains an explicit and tailored 
scienter standard.\56\ The Commission has adopted differing scienter 
standards in order to address commenters' concerns that the initially 
proposed Rule - which used only a single, ``knowingly'' scienter 
standard - would have chilled some legitimate business conduct, 
especially with respect to the prohibition on misleading omissions of 
material facts from affirmative statements. Third, the final Rule 
prohibits only those omissions of material facts that distort or are 
likely to distort market conditions for a covered product. This 
limitation too addresses concerns about unintended interference with 
legitimate business activity.
---------------------------------------------------------------------------

    \55\ 74 FR at 18316.
    \56\ See 74 FR at 18316.
---------------------------------------------------------------------------

B. Section 317.1: Scope

    Section 813 provides the Commission with the same jurisdiction and 
power under Subtitle B of EISA as does the FTC Act, 15 U.S.C. 41 et 
seq.\57\ With certain exceptions, the FTC Act provides the agency with 
jurisdiction over nearly every economic sector. Because EISA does not 
expand or contract coverage under the FTC Act, any ``person'' engaged 
in any activity subject to Commission jurisdiction under the FTC Act is 
covered by the final Rule. Conversely, any ``person'' engaged in any 
activity not subject to Commission jurisdiction under the FTC Act is 
not subject to Commission jurisdiction under the final Rule.
---------------------------------------------------------------------------

    \57\ Section 813(a) of EISA provides that Subtitle B shall be 
enforced by the FTC ``in the same manner, by the same means, and 
with the same jurisdiction as though all applicable terms of the 
[FTC] Act (15 U.S.C. 41 et seq.) were incorporated into and made a 
part of [Subtitle B].'' 42 U.S.C. 17303 (emphasis added).
---------------------------------------------------------------------------

    The only comments received in response to the RNPRM with respect to 
the scope of a final rule concerned pipelines and futures markets, and 
contained essentially the same arguments the commenters had made in 
previous comments.\58\ The Commission rejects the latest arguments, and 
reiterates that the scope of the final Rule is coextensive with the 
reach of the FTC Act.
---------------------------------------------------------------------------

    \58\ In response to the RNPRM, AOPL continued to urge the 
Commission to ``state explicitly that oil pipelines regulated by 
FERC under the [Interstate Commerce Act] are outside the coverage'' 
of any FTC rule. AOPL at 1-2. ATAA, on the other hand, continued to 
oppose any safe harbors or exemptions for pipelines in order to give 
full effect to the purpose of EISA. ATAA at 3-4 (``[N]othing in 
either Section 811 or Subtitle B suggests the FTC should consider 
limiting or competing concerns in its implementing regulations.'' ); 
see also PMAA at 2 (agreeing with the Commission's decision not to 
adopt a safe harbor for pipelines); cf. Greenberger at 3 (contending 
that the Commission should ``not offer[] an overly broad safe harbor 
from the FTC's statutorily mandated jurisdiction'').
    Other commenters renewed their request for the Commission to 
recognize what they believed to be the CFTC's ``exclusive 
jurisdiction'' over futures markets by making clear that its rule 
would not extend to futures trading activity. See CFTC at 2 (``There 
is no language in EISA that supersedes or limits the CFTC's exercise 
of [the CEA's] exclusive jurisdiction over futures trading.'' ); MFA 
at 2 (asking ``the Commission to adopt a safe harbor from its 
proposed Part 317 rules for futures markets activities'' and that 
``the safe harbor . . . apply even if the market participant's 
futures trading allegedly had an impact on cash or other non-futures 
market oil or gasoline prices''); see also Sutherland at 4 (stating 
that ``to prosecute conduct already regulated by the CFTC . . . will 
waste sparse resources and increase the costs to all market 
participants''). But see, e.g., Senator Cantwell at 2 (``Congress, 
however, specifically intended for the Commission to exercise this 
new authority by working cooperatively and in tandem with the CFTC 
to prevent and deter any manipulative activity, including in the 
futures markets, which would affect wholesale petroleum markets.'' 
); Greenberger at 2 (``Congress clearly intended the FTC to have 
power in this area that would not be blocked by the CFTC . . . .'' 
); CFA at 8 (stating that Congress did not preclude the Commission 
from extending its rule to futures markets). See generally Section 
IV.B. of the RNPRM for a discussion of the arguments previously 
raised by commenters regarding the jurisdictional scope of any 
Section 811 rule with respect to pipelines and futures markets. 74 
FR at 18310-11.
---------------------------------------------------------------------------

    With respect to pipelines, as the Commission stated in the RNPRM, 
not all pipelines necessarily fall outside the coverage of the FTC Act. 
Certain pipeline companies or their activities may fall outside the 
coverage of the FTC Act to the extent that they are acting as common 
carriers. However, pipeline companies and their owners or affiliates 
often are involved in multiple aspects of the petroleum industry - 
including the purchase or sale of petroleum products, and the provision 
of transportation services - and they may engage in conduct in 
connection with wholesale petroleum markets covered by EISA. The 
Commission has therefore determined that it must assess on a case-by-
case basis whether any particular person - or any conduct at issue - 
falls outside the scope of the final Rule, and/

[[Page 40691]]

or whether the conduct at issue falls under the ``in connection with'' 
language in the final Rule, which is discussed below in Section 
IV.D.1.b.
    For similar reasons, although the Commission recognizes the CFTC's 
jurisdiction ``with respect to accounts, agreements . . . and 
transactions involving contracts of sale of a commodity for future 
delivery,''\59\ the Commission declines to adopt a blanket safe harbor 
for futures markets activities. Nonetheless, consistent with its 
longstanding practice of coordinating its enforcement efforts with 
other federal or state law enforcement agencies where it has 
overlapping or complementary jurisdiction - as stated in the NPRM and 
the RNPRM - the Commission intends to work cooperatively with the CFTC 
to execute the Commission's objective to prevent fraud or deceit in 
wholesale petroleum markets.\60\
---------------------------------------------------------------------------

    \59\ 7 U.S.C. 2(a)(1)(A).
    \60\ 74 FR at 18310-12; 73 FR at 48323-25. Several commenters 
supported the Commission's intention to work cooperatively with 
other agencies in exercising its Section 811 authority. CFTC at 2; 
MFA at 4; ISDA at 3; see also 74 FR at 18311 n.82.
---------------------------------------------------------------------------

C. Section 317.2: Definitions

    The final Rule defines six terms: ``crude oil,'' ``gasoline,'' 
``knowingly,'' ``person,'' ``petroleum distillates,'' and 
``wholesale.'' The only change to the definitions set forth in the 
revised proposed Rule is a non-substantive change to the definition of 
``knowingly.'' These definitions establish the scope of the final 
Rule's coverage and provide guidance as to how the Commission intends 
to enforce the Rule. Only a few commenters addressed the definitions 
proposed in the RNPRM, and most of them focused on the definition of 
``knowingly.'' These comments, together with the Commission's analysis 
of the definitions included in the final Rule, are discussed below.
1. Section 317.2(a): ``Crude Oil''
    Section 317.2(a) of the revised proposed Rule defined ``crude oil'' 
as ``the mixture of hydrocarbons that exists: (1) in liquid phase in 
natural underground reservoirs and that remains liquid at atmospheric 
pressure after passing through separating facilities, or (2) as shale 
oil or tar sands requiring further processing for sale as a refinery 
feedstock.''\61\ No commenters addressed this definition in response to 
the RNPRM.
---------------------------------------------------------------------------

    \61\ 74 FR at 18312.
---------------------------------------------------------------------------

    Thus, Section 317.2(a) of the final Rule retains, without 
modification, the definition of ``crude oil'' in the revised proposed 
Rule. Consistent with its position in the NPRM and RNPRM, the 
Commission intends for the definition to include liquid crude oil and 
any hydrocarbon form that can be processed into a refinery feedstock, 
but to exclude natural gas, natural gas liquids, or non-crude refinery 
feedstocks.\62\
---------------------------------------------------------------------------

    \62\ 74 FR at 18312; 73 FR at 48325.
---------------------------------------------------------------------------

2. Section 317.2(b): ``Gasoline''
    Section 317.2(b) of the revised proposed Rule defined ``gasoline'' 
to mean: ``(1) finished gasoline, including, but not limited to, 
conventional, reformulated, and oxygenated blends, and (2) conventional 
and reformulated gasoline blendstock for oxygenate blending.''\63\ Only 
one commenter, IPMA, addressed this definition, arguing for the 
inclusion of renewable fuels such as ethanol and other oxygenates.\64\
---------------------------------------------------------------------------

    \63\ 74 FR at 18312 (adopting the initially proposed Rule's 
definition of ``gasoline'').
    \64\ See IPMA at 4 (arguing that the final Rule should include 
non-petroleum based commodities, such as ethanol and other 
oxygenates, in its definition of ``gasoline'').
---------------------------------------------------------------------------

    Section 317.2(b) of the final Rule retains, without modification, 
the definition of ``gasoline'' in the revised proposed Rule. As the 
Commission stated in the RNPRM, it ``intends to capture those 
commodities regularly traded as finished gasoline products or as 
gasoline products requiring only oxygenate blending to be finished, 
under this definition.''\65\ The Commission declines to extend the 
definition of ``gasoline'' to include products that are not listed in 
Section 811 - such as renewable fuels (e.g., ethanol) and blending 
components (e.g., alkylate and reformate). Nonetheless, the Commission 
concludes that it may apply the final Rule to conduct implicating those 
non-covered products if appropriate under the ``in connection with'' 
language of the final Rule, as discussed below in Section IV.D.1.b. As 
the Commission noted in the RNPRM, using the ``in connection with'' 
language provides the Commission ``with sufficient flexibility to 
protect wholesale petroleum markets from manipulation without expanding 
the reach of a Section 811 rule to cover products not identified in the 
statute.''\66\
---------------------------------------------------------------------------

    \65\ 74 FR at 18312.
    \66\ 74 FR at 18312.
---------------------------------------------------------------------------

3. Section 317.2(c): ``Knowingly''
    Section 317.2(c) of the revised proposed Rule defined ``knowingly'' 
to mean ``with actual or constructive knowledge such that the person 
knew or must have known that his or her conduct was fraudulent or 
deceptive.''\67\ The revised proposed Rule thus expressly provided that 
a person must engage in the proscribed conduct ``knowingly'' in order 
to violate Section 317.3(a); that is, that a person must ``knowingly'' 
engage in fraudulent or deceptive conduct.\68\
---------------------------------------------------------------------------

    \67\ 74 FR at 18312.
    \68\ See 74 FR at 18305, 18312.
---------------------------------------------------------------------------

    Although one commenter noted that the proposed definition clarified 
that ``inadvertent mistakes - caused perhaps by the disorderly nature 
of markets - would not be actionable as manipulation,''\69\ other 
commenters addressed a different point. These commenters urged the 
Commission to delete the phrase ``with actual or constructive 
knowledge'' from the definition, in order to avoid confusion about its 
interpretation.\70\
---------------------------------------------------------------------------

    \69\ Argus at 2.
    \70\ ISDA contended that ``[t]he commonly understood meaning of 
`knew or must have known' is to have actual or constructive 
knowledge,'' and that ``[i]ncluding duplicative language in the 
definition could have unintended effects.'' ISDA at 11. CFDR also 
supported deleting the phrase, but for a different reason; CFDR 
argued that the legal concept of ``constructive knowledge'' is 
inconsistent with a ```knew or must have known' scienter standard'' 
because ```[c]onstructive knowledge' . . . often is applied to hold 
a person accountable for information that he or she `should have 
known,' even if he or she did not.'' CFDR at 3.
---------------------------------------------------------------------------

    The Commission has determined to adopt this recommendation. Thus, 
final Rule Section 317.2(c) defines ``knowingly'' to mean ``that the 
person knew or must have known that his or her conduct was fraudulent 
or deceptive.'' The Commission emphasizes, however, that this 
modification in the definition of ``knowingly'' does not change its 
meaning.
    For purposes of enforcement of final Rule Section 317.3(a), the 
Commission has determined that a showing of extreme recklessness is, at 
a minimum, necessary to prove the scienter element. In this regard, the 
Commission adopts, in part, the ``extreme recklessness'' standard 
established by the United States Court of Appeals for the Seventh 
Circuit.\71\ Though the Circuits may differ on the application of 
extreme recklessness,\72\ almost all of them have

[[Page 40692]]

now adopted this standard.\73\ Similarly, the Commission has concluded 
that the standard should apply to the final Rule, and the Commission 
believes that it is appropriate because it provides for both effective 
rule enforcement and clarity to market participants.
---------------------------------------------------------------------------

    \71\ In an opinion by Judge Posner, the Court of Appeals for the 
Seventh Circuit recently reaffirmed the Sundstrand extreme 
recklessness standard. SEC v. Lyttle, 538 F.3d 601, 603 (7th Cir. 
2008).
    \72\ See 73 FR at 48329; 74 FR at 18318. As the Supreme Court 
has noted, ``[e]very Court of Appeals that has considered the issue 
[of civil liability under SEA Section 10(b) and Rule 10b-5] has held 
that a plaintiff may meet the scienter requirement by showing that 
the defendant acted intentionally or recklessly, though the Circuits 
differ on the precise formulation of recklessness.'' Tellabs, Inc. 
v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 n.3 (2007) (citing 
Ernst & Ernst, 425 U.S. at 194 n.12); Ottmann v. Hunger Orthopedic 
Group, Inc., 353 F.3d 338, 343 (4th Cir. 2003) (collecting Court of 
Appeals cases). The Supreme Court, however, has reserved the 
question whether extreme reckless behavior is, in fact, sufficient 
to establish civil liability under SEA Section 10(b) and Rule 10b-5. 
See Tellabs, Inc., 551 U.S. at 319 n.3.
    \73\ Phillips v. LCI Int'l, Inc., 190 F.3d 609, 621 (4th Cir. 
1999); SEC v. Steadman, 967 F.2d 636, 641 (D.C. Cir. 1992); 
Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 
1990) (en banc); Hackbert v. Holmes, 675 F.2d 1114, 1118 (10th Cir. 
1982); Broad v. Rockwell, 642 F.2d 929, 961 (5th Cir. 1981) (en 
banc); McLean v. Alexander, 599 F.2d 1190, 1197 (3d. Cir. 1979); 
Mansbach v. Prescott, Ball, & Turben, 598 F.2d 1017, 1025 (6th Cir. 
1979); see also Greebel v. FTP Software, 194 F.3d 185, 198 (1st Cir. 
1999); Camp v. Dema, 948 F.2d 455, 461 (8th Cir. 1991).
---------------------------------------------------------------------------

    The ``extreme recklessness'' standard articulated by the Seventh 
Circuit requires a showing that an actor knew or must have known that 
his conduct created a danger of misleading buyers or sellers.\74\ The 
Seventh Circuit has stated that this showing can be made with respect 
to securities fraud by establishing that the actor's conduct 
constitutes ``an extreme departure from the standards of ordinary care 
. . . to the extent that the danger [of misleading buyers or sellers] 
was either known to the defendant or so obvious that the defendant must 
have been aware of it.''\75\ However, whereas standards of ordinary 
care are well developed in the context of securities markets, they are 
less well defined in the context of wholesale petroleum markets. For 
this reason, the Commission has concluded that a showing of a departure 
from ``ordinary care'' is not required to establish scienter under 
final Rule Section 317.3(a). The Commission therefore has determined 
that, for purposes of final Rule Section 317.3(a), proving scienter 
will require showing only that a person either knew or must have known 
that his or her conduct created a danger of misleading buyers or 
sellers.
---------------------------------------------------------------------------

    \74\ Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1045 
(7th Cir.), cert. denied, 434 U.S. 875 (1977) (quoting Franke v. 
Midwestern Okla. Dev. Auth., 428 F. Supp. 719, 725 (W.D. Okla. 
1976)). The Court of Appeals for the District of Columbia Circuit 
relied upon Sundstrand to establish the ``extreme recklessness'' 
scienter standard applicable to SEC Rule 10b-5. See SEC v. Steadman, 
967 F.2d 636, 641-42 (D.C. Cir. 1992) (adopting Sundstrand's extreme 
recklessness standard).
    \75\ SEC v. Lyttle, 538 F.3d at 603-04, quoting Makor Issues & 
Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 704 (7th Cir. 2008).
---------------------------------------------------------------------------

    This definition of ``knowingly'' gives petroleum industry 
participants the appropriate guidance as to the level of scienter 
required to establish a final Rule Section 317.3(a) violation. The 
Commission further discusses the application of the ``knowingly'' 
standard in Section IV.D.2.a. below.
4. Section 317.2(d): ``Person''
    Section 317.2(d) of the revised proposed Rule defined the term 
``person'' to mean: ``any individual, group, unincorporated 
association, limited or general partnership, corporation, or other 
business entity.''\76\ No commenters addressed this definition in 
response to the RNPRM. As stated in the RNPRM, the Commission believes 
that ``this definition is consistent with the jurisdictional reach of 
the FTC Act, as well as with prior usage in other FTC rules.''\77\ 
Therefore, Section 317.2(d) of the final Rule retains the revised 
proposed definition of ``person'' without modification.
---------------------------------------------------------------------------

    \76\ 74 FR at 18313 (adopting the initially proposed Rule's 
definition of ``person'').
    \77\ 74 FR at 18313; see, e.g., Telemarketing Sales Rule, 16 CFR 
310.2(v); Disclosure Requirements and Prohibitions Concerning 
Franchising, 16 CFR 436.1(n).
---------------------------------------------------------------------------

5. Section 317.2(e): ``Petroleum Distillates''
    Section 317.2(e) of the revised proposed Rule defined ``petroleum 
distillates'' to mean ``(1) jet fuels, including, but not limited to, 
all commercial and military specification jet fuels, and (2) diesel 
fuels and fuel oils, including, but not limited to, No. 1, No. 2, and 
No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.''\78\ No 
commenters addressed this definition in response to the RNPRM.
---------------------------------------------------------------------------

    \78\ 74 FR at 18313 (adopting the initially proposed Rule's 
definition of ``petroleum distillates'').
---------------------------------------------------------------------------

    The Commission has determined to include in final Rule Section 
317.2(e), without modification, the definition of ``petroleum 
distillates'' in revised proposed Rule Section 317.2(e). As stated in 
the NPRM and the RNPRM, this definition includes ``finished fuel 
products, other than `gasoline,' produced at a refinery or blended in 
tank at a terminal.''\79\ As the Commission explained in the RNPRM, the 
definition of ``petroleum distillates'' also includes middle distillate 
refinery fuel streams, and thus encompasses all product streams above 
heavy fuel oils - up to and including lighter products such as on-road 
diesel, heating oil, and kerosene-based jet fuels - but does not extend 
to heavy fuel oils.\80\ Consistent with the RNPRM, the Commission has 
also determined that the definition of ``petroleum distillates'' does 
not extend to renewable fuels such as biodiesel.\81\ The Commission 
addresses the intended application of the final Rule to conduct 
implicating non-covered products, such as renewable fuels, in its 
discussion of the ``in connection with'' language in Section IV.D.1.b. 
below.
---------------------------------------------------------------------------

    \79\ 74 FR at 18313; 73 FR at 48325.
    \80\ 74 FR at 18313.
    \81\ See 74 FR at 18313.
---------------------------------------------------------------------------

6. Section 317.2(f): ``Wholesale''
    Section 317.2(f) of the revised proposed Rule defined the term 
``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.''\82\ As stated in the RNPRM, the 
Commission intended the definition of ``wholesale'' to include all bulk 
sales of crude oil and jet fuel (even when not for resale) and all 
terminal rack sales,\83\ but not to extend to retail sales of gasoline, 
diesel fuels, or fuel oils to consumers.\84\
---------------------------------------------------------------------------

    \82\ 74 FR at 18314.
    \83\ 74 FR at 18314.
    \84\ 74 FR at 18314; see also 73 FR at 48326.
---------------------------------------------------------------------------

    Two commenters, PMAA and Greenberger, supported the inclusion of 
sales at the terminal rack level in the definition.\85\ SIGMA, by 
contrast, renewed its opposition to including such transactions, 
arguing in part that rack prices are ``unlikely to alter overall price 
levels in the markets served out of a terminal or terminal cluster'' 
and that ``there are no reported instances of price manipulation 
practices at the rack terminal level.''\86\
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    \85\ PMAA at 2 (agreeing with the Commission's position on rack 
sales); Greenberger at 3 (supporting the RNPRM's definition of 
``wholesale'' that includes rack transactions).
    \86\ SIGMA at 2 (``[Rack] prices are set by the supplier's view 
of the market and are not normally fixed by reference to other 
suppliers' prices.'' ).
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    The Commission is not persuaded that there is little or no 
potential for market manipulation at or below the terminal rack level. 
As the Commission stated in the RNPRM, ``prohibited conduct may in fact 
occur at the terminal rack level'' and ``[s]uch a determination 
requires analysis on a case-by-case basis.''\87\ Moreover, terminal 
rack sales are ``wholesale'' transactions as that term is commonly 
defined, and excluding them from the definition of ``wholesale'' would 
therefore place the final Rule at odds with the express language of 
EISA, which addresses manipulative conduct in wholesale markets. The 
Commission has consequently determined to retain in final Rule Section 
317.2(f), without modification, the definition of

[[Page 40693]]

``wholesale'' in revised proposed Rule Section 317.2(f).
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    \87\ 74 FR at 18313-14.
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D. Section 317.3: Prohibited Practices

    Section 317.3 sets forth the conduct prohibited by the final Rule. 
Specifically, this provision states:
    It shall be unlawful for any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, to:
    (a) Knowingly engage in any act, practice, or course of business - 
including the making of any untrue statement of material fact - that 
operates or would operate as a fraud or deceit upon any person; or
    (b) Intentionally mislead by failing to state a material fact that 
under the circumstances renders a statement made by such person 
misleading, provided that such omission distorts or is likely to 
distort market conditions for any such product.
    The final Rule thus prohibits fraudulent or deceptive conduct, 
including statements made misleading as a result of an omission of 
material fact, within or in connection with wholesale petroleum 
markets.
    Final Rule Section 317.3 is virtually identical to Section 317.3 in 
the revised proposed rule.\88\ As the Commission detailed in the RNPRM 
in discussing the proposed scope and application of the two paragraphs 
of Section 317.3, the final Rule therefore broadly prohibits fraudulent 
or deceptive conduct, which may take various forms, including 
statements that are misleading as the result of an omission of material 
information. As articulated in the RNPRM, the Commission has altered 
the initially proposed Rule and its conduct prohibitions to clarify the 
type of conduct covered by the final Rule.\89\ First, the Commission 
has consolidated the conduct prohibition in Section 317.3 of the 
initially proposed Rule from three paragraphs into two paragraphs. The 
first paragraph applies to overt conduct that is fraudulent or 
deceptive; the second paragraph applies only to material omissions. The 
Commission has determined that this consolidation defines the unlawful 
conduct that the Rule prohibits more precisely than the three 
paragraphs in the initially proposed Rule did. Second, the Commission 
has adopted separate scienter standards for each of the two paragraphs 
to address concerns that the initially proposed Rule would chill 
legitimate business activity, and, in so doing, has established a 
higher scienter standard for the second paragraph than for the 
first.\90\ Third, the Commission has addressed concerns that 
specifically prohibiting material omissions would create an undue risk 
of deterring voluntary disclosures of information. It has addressed 
this concern by requiring a showing that the omission at issue distorts 
or is likely to distort market conditions for a covered product.\91\ By 
tailoring the final Rule in this fashion, the Commission believes it 
achieves an appropriate balance between the needs of effective 
enforcement and unduly burdening legitimate business practices.
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    \88\ In addition to the revised proposed rule, the RNPRM invited 
commenters to consider a single, unified conduct provision 
prohibiting all fraudulent or deceptive conduct, including material 
omissions (and deleting the separate prohibition of such omissions). 
In particular, the alternative provision would have made it unlawful 
for ``any person, directly or indirectly, in connection with the 
purchase or sale of crude oil, gasoline, or petroleum distillates at 
wholesale, to engage in any act (including the making of any untrue 
statement), practice, or course of conduct with the intent* to 
defraud or deceive, provided that such act, practice, or course of 
conduct distorts or tends to distort market conditions for any such 
product.'' 74 FR at 18327. The phrase ``with the intent'' would have 
been defined to mean that the alleged violator intended to mislead - 
regardless of whether he or she specifically intended to affect 
market prices (that is, possessed specific intent), or knew or must 
have known of the probable consequences of such conduct - and 
regardless of whether the conduct was likely to defraud or deceive 
the target successfully. Id.
    \89\ The initially proposed Rule stated:
    It shall be unlawful for any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale,
    (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.
    73 FR at 48334. This wording and format were virtually identical 
to SEC Rule 10b-5.
    \90\ As the Commission noted in the ANPR, the NPRM, and the 
RNPRM, nothing in connection with this Section 811 [r]ulemaking, any 
subsequently enacted rules, or related efforts should be construed 
to alter the standards associated with establishing a deceptive or 
an unfair practice in a case brought by the Commission. 73 FR at 
48322 n.61; 73 FR at 25619 n.55; 74 FR at 18316 n.144. Specifically, 
no showing of any degree of scienter is required to establish that a 
particular act or practice is deceptive or unfair, and therefore 
violates Section 5 of the FTC Act. See, e.g., FTC v. Bay Area Bus. 
Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005); FTC v. Freecom 
Commc'ns., Inc., 401 F.3d 1192, 1202 (10th Cir. 2005); FTC v. Amy 
Travel Serv., Inc., 875 F.2d 564, 573-74 (7th Cir. 1989).
    \91\ Revised proposed Rule Section 317.3(b) contained a market 
conditions proviso that did not exist in the initially proposed 
Rule; that is, that the material omission ``distorts or tends to 
distort market conditions'' for a covered product. As noted above, 
the Commission has determined to substitute the phrase ``is likely'' 
for the word ``tends'' in final Rule Section 317.3(b). See Section 
IV.D.3.b. below for further discussion.
---------------------------------------------------------------------------

    Accordingly, final Rule Section 317.3(a) prohibits any conduct that 
operates or would operate as a fraud or a deceit, provided that the 
alleged violator engaged in the prohibited conduct knowingly; that is - 
as defined in the final Rule - with extreme recklessness. Final Rule 
Section 317.3(b) separately prohibits statements that are misleading 
because a material fact is omitted intentionally and the omission 
distorts or is likely to distort conditions in a wholesale petroleum 
market. The intent requirement - and the proviso that an omission must 
distort or be likely to distort market conditions for a covered product 
in order to violate Section 317.3(b) - address many commenters' 
concerns that the omissions provision in initially proposed Rule 
Section 317.3(b) would have chilled legitimate business activity. The 
Commission believes that these features of final Rule Section 317.3(b) 
focus it on fraudulent or deceptive conduct likely to threaten the 
integrity of wholesale petroleum markets.
    The Commission has concluded that the final Rule does not cover 
inadvertent mistakes, unintended conduct, or legitimate conduct 
undertaken in the ordinary course of business.\92\ This limitation 
further helps to avoid impeding beneficial business behavior. The final 
Rule also does not impose any recordkeeping requirements.\93\
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    \92\ Consistent with its position in the NPRM and the RNPRM, the 
Commission currently does not expect to impose specific conduct or 
duty requirements such as a duty to supply product, a duty to 
provide access to pipelines or terminals, a duty to disclose, or a 
duty to update or correct information. In particular, the final Rule 
would not require covered entities to disclose price, volume, and 
other data to individual market participants, or to the market at 
large, beyond any obligation that may already exist. See 73 FR at 
48326-27; 74 FR at 18325.
    \93\ See 73 FR at 48332.
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    Nearly all the commenters who discussed the conduct prohibition in 
the revised proposed Rule supported the modifications that the 
Commission made to the initially proposed Rule.\94\

[[Page 40694]]

Many commenters urged, however, additional modifications to Section 
317.3. For example, a few commenters recommended that the Commission 
broaden the scope of the revised proposed Rule by applying the extreme 
recklessness standard to Section 317.3(b) - as well as to Section 
317.3(a)\95\ - and by eliminating the market conditions proviso in 
Section 317.3(b).\96\ Other commenters, by contrast, recommended that 
the Commission narrow the revised proposed Rule by: (1) adopting a 
single specific intent standard and applying it to both parts of 
Section 317.3;\97\ (2) applying either a specific market effect 
requirement or a market conditions proviso to both parts of Section 
317.3;\98\ and (3) eliminating the prohibition on material 
omissions.\99\ Some of these commenters believed that the alternative 
rule language would better address their concerns.\100\
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    \94\ See, e.g., ISDA at 2 (contending that the revised proposed 
Rule ``includes several significant improvements''); SIGMA at 1 
(stating that the revised proposed Rule ``dramatically improv[ed]'' 
upon the NPRM and ANPR); API at 25, 34 (noting the improvements in 
the revised proposed Rule); CFA at 2 (``[T]he Commission has done a 
good job in its revisions.'' ); Sutherland at 2 (commending the 
revised proposed Rule for ``striking a balance between protecting 
consumers from manipulation and avoiding unnecessary costs to market 
participants''); Argus at 2 (stating that the revised proposed Rule 
provided greater clarity to the petroleum industry); CAPP at 1-2 
(supporting the inclusion of an explicit scienter requirement and 
market conditions proviso to Section 317.3(b)); CFDR at 2 (stating 
that the revised proposed Rule was a ``substantial improvement[]''); 
Platts at 2 (contending that the revised proposed Rule improved upon 
the proposed Rule); PMAA at 2-3 (noting that the revised proposed 
Rule was an improvement). Greenberger and ATAA, however, recommended 
that the Commission adopt the initially proposed Rule, arguing that 
it best fulfilled the broad mandate of EISA. Greenberger at 2; ATAA 
at 1. Some commenters took no position on the revised proposed Rule 
except to advance specific concerns regarding the scope of a rule. 
See generally CFTC; MFA; IPMA; AOPL.
    \95\ See, e.g., Senator Cantwell at 3 (``[T]he Commission's 
Final Rule should reflect Congress' intent that a finding of 
recklessness should be sufficient to satisfy the scienter element 
for manipulative conduct . . . .'' ); CFA at 9 (suggesting that the 
Commission apply the recklessness standard to both prongs of the 
final Rule); see also Greenberger at 3 (agreeing that recklessness 
is the appropriate scienter standard under a Section 811 rule).
    \96\ See, e.g., Senator Cantwell at 4 (arguing that the market 
conditions proviso unnecessarily limited the scope of the 
Commission's authority); Greenberger at 3 (advocating against the 
market conditions proviso in Section 317.3(b)); CFA at 8 (stating 
that the modifications to the Rule ``unnecessarily narrow[ed] the 
scope of protection afforded to the public'').
    \97\ See, e.g., Sutherland at 3 (stating that a single specific 
intent standard would allow the Commission to ``target essentially 
the same conduct as is targeted by the Revised NPRM but with less 
risk of chilling desirable market behavior''); Argus at 2 
(advocating for a specific intent requirement if individual 
companies and trade associations do not believe the revised proposed 
Rule provides the necessary clarity); API at 26 (contending that a 
single specific intent standard would make rule enforcement more 
effective). But see CFDR at 2 (noting that the scienter requirement 
in the revised proposed Rule is ``relatively clear'').
    \98\ See, e.g., ISDA at 3, 14 (suggesting that the Commission 
apply a market conditions proviso to both prongs of Section 317.3); 
API at 37-38 (arguing that a showing of market effects should be 
required, but that if instead the market conditions proviso were 
retained, it should apply to all conduct covered by the Rule); 
Sutherland at 4 (encouraging the Commission to ``require prohibited 
behavior to impact the market''); CFDR at 4-5 (asking the Commission 
to ``make intent to corrupt market pricing an element of the 
offense'').
    \99\ See, e.g., API at 12 (recommending that the Commission 
eliminate the prohibition on omissions); Sutherland at 3 (arguing 
that market participants are sophisticated parties who ``generally 
do not require special remediation'' for omissions in the context of 
negotiations); CFDR at 4 (advocating against adopting an explicit 
omissions liability provision).
    \100\ See, e.g., Sutherland at 2-3 (arguing that the alternative 
rule language provided ``greater clarity than the Revised NPRM''); 
ISDA at 4-5 (contending that the alternative rule language was 
``better suited'' to wholesale petroleum markets because it better 
defined the scope of impermissible conduct); API at 20 (arguing for 
adoption of the alternative rule language with clarifications); 
Platts at 2 (urging the Commission to consider adopting the 
alternative rule language); CFDR at 4 n.3 (preferring the approach 
of the alternative rule language to omissions). Many of these 
commenters suggested further modifications to the alternative rule 
language. See, e.g., API at 2-4; Platts at 2; Sutherland at 2-3.
---------------------------------------------------------------------------

    The Commission has considered commenters' concerns carefully, and 
has determined not to effect further changes to the scope of the 
revised proposed Rule. The Commission has concluded that narrowing the 
Rule, as suggested by some commenters, would unnecessarily encumber its 
ability to reach conduct that likely constitutes market manipulation, 
contrary to the objectives of Section 811, and that the modifications 
to the initially proposed Rule (which was nearly identical to SEC Rule 
10b-5) appropriately tailor the final Rule to reflect the 
characteristics of wholesale market transactions. Additionally, the 
Commission has concluded that broadening the rule to reach other types 
of conduct, as suggested by some commenters, would be inconsistent with 
the statutory language authorizing the Commission to prohibit market 
manipulation pursuant to the framework of SEC Rule 10b-5, an anti-fraud 
rule.
    The broad prohibition in final Rule Section 317.3(a) permits the 
Commission to reach all types of fraudulent or deceptive conduct likely 
to harm wholesale petroleum markets. The extreme recklessness standard 
in Section 317.3(a) appropriately focuses that paragraph on conduct 
that presents an obvious risk of misleading buyers or sellers, and 
ensures that this provision does not reach inadvertent mistakes, which 
could have had the unintended effect of curtailing beneficial market 
activity. The Commission believes that the design of the separate and 
more limited prohibition of Section 317.3(b) - a prohibition on 
statements that are misleading as a result of an omission of a material 
fact - addresses commenters' concerns about the difficulty of 
distinguishing between benign and harmful omissions. The Commission 
believes that this objective is achieved by the greater evidentiary 
burden imposed by Section 317.3(b) of the final Rule - a higher 
scienter requirement and a market conditions proviso.
    The Commission therefore issues final Rule Section 317.3 in a form 
virtually identical to Section 317.3 in the revised proposed Rule. In 
so doing, the Commission has specifically tailored each paragraph of 
final Rule Section 317.3 to bring about an appropriate balance between 
effective prohibition of undesirable conduct and avoidance of 
unintended chilling of desirable economic activity.\101\ A more 
detailed discussion of the final Rule's conduct provisions and the 
Commission's response to commenters is set forth below.
---------------------------------------------------------------------------

    \101\ See 74 FR at 18308.
---------------------------------------------------------------------------

1. Preamble Language
a. ``Directly or Indirectly''
    The phrase ``directly or indirectly'' - which originates in Section 
811 of EISA\102\ and is also included in the preamble to final Rule 
Section 317.3 - delineates the level of involvement necessary to 
establish liability under the final Rule. In particular, it means that 
the final Rule imposes liability not only upon any person who directly 
engages in manipulation but also upon any person who does so 
indirectly.
---------------------------------------------------------------------------

    \102\ 42 U.S.C. 17301 (``It is unlawful for any person, directly 
or indirectly, to use or employ . . . .'' (emphasis added)).
---------------------------------------------------------------------------

    One commenter, CFA, opined that Congress included the phrase 
``directly or indirectly'' in part to support a recklessness standard 
for a Section 811 rule.\103\ The Commission disagrees with this reading 
of the statute. Rather, the Commission has determined that ``directly 
or indirectly'' describes the level of involvement necessary to 
establish liability under the final Rule, not any particular scienter 
standard. Thus, consistent with its position in the RNPRM, the 
Commission has determined that the phrase ``directly or indirectly'' in 
the final Rule should ``be interpreted and applied to prevent a person 
from engaging in the prohibited conduct, either alone or through 
others.''\104\
---------------------------------------------------------------------------

    \103\ CFA at 4-5 (``By including the phrase directly or 
indirectly, making no mention of intentionality or effect, and 
citing only the public interest, the Congress clearly invited the 
[FTC] to. . . reject the inclusion of a finding of intent in order 
to find unlawful conduct.'' ). See Sections IV.D.2.a. and IV.D.3.a. 
for a discussion of the scienter requirements in the final Rule.
    \104\ 74 FR at 18317.

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[[Page 40695]]

b. ``In Connection With''
    Section 811 authorizes the Commission to prohibit manipulative 
conduct undertaken ``in connection with'' the purchase or sale of crude 
oil, gasoline, or petroleum distillates at wholesale.\105\ Thus, the 
final Rule reaches market manipulation that occurs in the wholesale 
purchase or sale of products covered by Section 811 (and defined in the 
final Rule) - and ``in connection with'' such purchases or sales - 
provided that there is a sufficient nexus between the prohibited 
conduct and the markets for these products.\106\
---------------------------------------------------------------------------

    \105\ AOPL argued that the phrase ``in connection with'' cannot 
give the Commission jurisdiction over oil pipelines regulated by the 
FERC under the ICA. AOPL at 7-8. The Commission addresses the final 
Rule's application to pipelines in Section IV.B.
    \106\ Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 
U.S. 71, 85 (2006) (holding that the ``in connection with'' language 
requires a nexus between fraudulent conduct and a securities 
transaction).
---------------------------------------------------------------------------

    In response to the RNPRM, two commenters discussed the ``in 
connection with'' language. Senator Cantwell urged the Commission to 
interpret the phrase ``broadly . . . to prevent and deter any 
manipulative conduct,'' including supply and operational decisions, 
``that could impact wholesale petroleum markets.''\107\ IPMA supported 
the Commission's tentative determination to reach ethanol and other 
blending products through the ``in connection with'' language.\108\
---------------------------------------------------------------------------

    \107\ Senator Cantwell at 2-3.
    \108\ IPMA at 4.
---------------------------------------------------------------------------

    As it stated in the RNPRM, the Commission believes that Congress 
intended that it construe the phrase ``in connection with'' 
broadly.\109\ Such an interpretation is consistent with precedent from 
securities law interpreting the same phrase in SEC Rule 10b-5,\110\ and 
will enable the Commission to give full effect to the statutory 
language of Section 811, which is identical to SEA Section 10(b). In 
this respect, the Commission disagrees with commenters that the ``in 
connection with'' language should never reach supply or operational 
decisions. Instead, the language can reach those decisions whenever 
there is a sufficient nexus between the conduct at issue and the 
purchase or sale of crude oil, gasoline, or petroleum distillates.\111\
---------------------------------------------------------------------------

    \109\ See 74 FR at 18317-18.
    \110\ See Dabit, 547 U.S. at 85 (affirming a broad 
interpretation of the ``in connection with'' requirement).
    \111\ The Commission emphasizes that it does not intend to 
regulate or otherwise second-guess market participants' legitimate 
supply and operational decision-making, contrary to the assertion of 
some commenters. See API, NPRM, at 30-32 (urging the Commission not 
to interpret the ``in connection with'' language as reaching 
upstream conduct and statements, including operational and supply 
decisions); NPRA, NPRM, at 33 (arguing that ``any possibility of 
liability under an FTC rule for [supply or operational] decisions 
could seriously distort refiners' decision making and disrupt 
competitive activity in petroleum markets'').
---------------------------------------------------------------------------

    With respect to product coverage, as detailed in the RNPRM, the 
Commission intends to reach products - such as renewable fuels (e.g., 
ethanol or biodiesel) or blending components (e.g., alkylate or 
reformate) - that are not specifically identified in Section 811 only 
if there is a sufficient nexus between conduct involving those products 
and wholesale petroleum markets for covered products.\112\ Renewable 
fuels and blending components are integral to the overall supply of 
finished motor fuels. Thus, manipulating purchases or sales of these 
products can have the requisite nexus with wholesale petroleum markets.
---------------------------------------------------------------------------

    \112\ See 74 FR at 18317-18.
---------------------------------------------------------------------------

    By contrast, the Commission does not intend to apply the final Rule 
to commodities whose predominant use is in non-petroleum products, or 
to commodities that are inputs for ethanol, such as corn and sugar. The 
connection between these commodities and wholesale petroleum markets 
would likely be too attenuated to satisfy the ``in connection with'' 
requirement of Section 811. Thus, the Commission will determine on a 
case-by-case basis whether supply or operational decisions - or conduct 
in renewable fuels markets (or markets for other non-covered products) 
- are ``in connection with'' wholesale petroleum transactions.\113\
---------------------------------------------------------------------------

    \113\ A further safeguard against regulatory overreach 
respecting supply or operational decisions is that a violation of 
the final Rule also requires that the requisite scienter standard be 
demonstrated. The requirement that this element be proved clarifies 
that the final Rule does not reach conduct arising out of an error 
or miscalculation, either because the actor did not knowingly engage 
in fraudulent or deceptive conduct, or because the actor did not 
intentionally mislead by omitting material facts from statements.
---------------------------------------------------------------------------

2. Section 317.3(a): General Anti-Fraud Provision
    Final Rule Section 317.3(a) is the same as revised proposed Section 
317.3(a). Specifically, final Rule Section 317.3(a) is a general anti-
fraud provision that prohibits any person from knowingly engaging in 
conduct - including the making of false statements of material fact - 
that operates or would operate as a fraud or deceit on any person. 
Final Rule Section 317.3(a) thus prohibits fraudulent or deceptive 
conduct that not only serves no legitimate purpose, but can be expected 
to impair the efficient functioning of wholesale petroleum 
markets.\114\ Specific examples of conduct that would violate Section 
317.3(a) include false public announcements of planned pricing or 
output decisions; false statistical or data reporting; false statements 
made in the context of bilateral or multilateral communications that 
result in the dissemination of the false information to the broader 
market;\115\ and fraudulent or deceptive conduct such as wash sales.
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    \114\ 74 FR at 18318.
    \115\ The Commission generally does not intend to reach 
bilateral negotiations as a matter of course. Fraud or deception 
arising out of such negotiations may be more appropriately treated 
under state law. This position is consistent with that of the FERC 
in interpreting similar market manipulation authority. See 71 FR at 
4251-52 (stating that ``absent a tariff requirement or [FERC] 
directive,'' the FERC ``generally will not apply [its] final [anti-
manipulation] rule to bilateral contract negotiations'').
---------------------------------------------------------------------------

    The overall record in this proceeding reflects widespread support 
for a market manipulation rule that prohibits overt fraud or 
deceit.\116\ Comments submitted in response to the RNPRM add to this 
support.\117\ Several commenters, however, raised concerns regarding 
the scope of revised proposed Section 317.3(a). For example, some 
commenters recommended that the Commission modify the paragraph to 
require the specific intent to commit fraud or deceit - or a specific 
intent to manipulate a market - as an element of proof.\118\ These 
commenters also urged the Commission to add a market conditions proviso 
to Section 317.3(a), because in their view, such a proviso was needed 
to ensure that the provision prohibited market manipulation.\119\
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    \116\ See prior Notices for further discussion of commenters who 
support an anti-fraud rule. 74 FR at 18308 & n.47; 73 FR at 48319 & 
n.28.
    \117\ See, e.g., Sutherland at 3 (supporting ``a prohibition 
against intentional false statements or a prohibition against 
intentional fraudulent conduct''); API at 29 (``The proper objective 
of any rule issued under Section 811 is to cover deceptive conduct . 
. . .'' ); ATAA at 3 (``ATA[A] hopes that if the FTC adopts the 
revised proposed rule, it will apply and enforce that rule 
consistent with the broad anti-fraud mandate of the EISA.'' ); CAPP 
at 2 (``Manipulative conduct that makes use of false information in 
market transactions does not constitute routine or acceptable 
commercial behavior, and is reasonably within the scope of 
prohibited conduct.'' ).
    \118\ See, e.g., ISDA at 6 (``Any rule that the Commission 
enacts should require proof that a market participant specifically 
intended to engage in a fraudulent or deceptive practice . . . .'' 
); CFDR at 2 (arguing that a Section 811 rule ``must require that a 
person act with an intent to corrupt market pricing''); Sutherland, 
NPRM, at 5 (urging the Commission to require a showing ``that the 
defendant specifically intended to manipulate the market'').
    \119\ See, e.g., API at 34 (arguing that including such a 
proviso would ``focus[] the rule on the sort of conduct Congress 
sought to address: acts and practices that manipulate a market''); 
ISDA at 3 (encouraging the Commission to modify the Rule to apply 
the market conditions proviso to both prongs); see also Sutherland 
at 4 (urging the Commission ``to require [a showing that] prohibited 
behavior . . . impact the market'').

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[[Page 40696]]

    The Commission has considered these issues and concerns, but has 
determined that final Rule Section 317.3(a) should be identical to 
revised proposed Rule Section 317.3(a) so that it broadly prohibits all 
types of fraudulent or deceptive conduct likely to harm wholesale 
petroleum markets. The Commission has thus retained the ``knowingly'' 
scienter standard in final Rule Section 317.3(a) and has chosen not to 
require a showing that prohibited conduct adversely affect market 
conditions. This determination comports with the Commission conclusion 
that there is no economic justification for overt fraud or deception, a 
view about which there is no dispute in the rulemaking record. The 
Commission has determined that these choices also provide sufficient 
protection against capturing legitimate business conduct - and against 
reaching mistakes - because affirmative misstatements are not easily 
confused with benign conduct.
    The Commission also has determined that final Rule Section 317.3(a) 
should not reach material omissions because they are covered by Section 
317.3(b). Although the Commission opined in the RNPRM that ``any 
omission that is part of a fraudulent or deceptive act, practice, or 
course of business would violate Section 317.3(a),''\120\ the 
Commission now has concluded that the better course is to subject 
unlawful omissions only to enforcement under final Rule Section 
317.3(b). To do otherwise would introduce unnecessary confusion, and 
could potentially limit voluntary disclosures beneficial to market 
transparency. Thus, conduct covered by Section 317.3(a) does not 
include misleading statements resulting from material omissions covered 
by final Rule Section 317.3(b).
---------------------------------------------------------------------------

    \120\ 74 FR at 18320 n.188. API expressed concern that if 
Section 317.3(a) reaches omissions also covered by Section 317.3(b), 
it would render paragraph (b) superfluous. See API at 22-23; see 
also Argus at 2 (stating that some companies need clarification that 
omissions will only be covered by Section 317.3(b)).
---------------------------------------------------------------------------

a. A Person Must Knowingly Engage in Conduct That Operates or Would 
Operate as a Fraud or Deceit
    Section 317.3(a) of the revised proposed Rule provided that a 
person must engage in the proscribed conduct ``knowingly'' in order to 
violate the provision. In the RNPRM, the Commission tentatively defined 
the term ``knowingly'' to be coextensive with the extreme recklessness 
standard.\121\ Thus, the Commission stated in the RNPRM that extreme 
recklessness would satisfy the intent requirement in revised proposed 
Section 317.3(a).\122\
---------------------------------------------------------------------------

    \121\ 74 FR at 18318. The extreme recklessness standard was also 
the scienter standard contemplated for the initially proposed Rule. 
See 73 FR at 48329.
    \122\ 74 FR at 18318.
---------------------------------------------------------------------------

    Several commenters urged the Commission to adopt a single, higher 
``specific intent'' standard for the final Rule.\123\ Other commenters, 
by contrast, contended that an extreme recklessness standard would be 
appropriate and consistent with congressional intent.\124\ For example, 
CFA argued that the proposed extreme recklessness standard would be 
``more appropriate to protect the public'' because it ``require[d] the 
[market] participants to exercise some self-control and to self-
regulate their behavior.''\125\
---------------------------------------------------------------------------

    \123\ See, e.g., API at 32, 34 n.38 (arguing that a final rule 
should require a ``specific intent to manipulate the market as a 
prerequisite for liability'' because such a standard ``would 
considerably reduce the element of subjectivity and uncertainty that 
currently exists in [Section 317.3(a)]''); ISDA at 6 (positing that, 
because wholesale petroleum market participants trade and make 
decisions in real time, often without perfect information, the 
Commission should only ``prosecute intentionally fraudulent 
conduct''); CFDR at 2 (urging the Commission to ``require that a 
person act with an intent to corrupt market pricing or otherwise to 
cause market prices to be false, fictitious and artificial''); see 
also MFA at 3 (stating that if the Commission captures futures 
markets under its final Rule, it should adopt specific intent, which 
is consistent with Section 4b of the CEA).
    \124\ See, e.g., Senator Cantwell at 3 (``[T]he Commission's 
Final Rule should reflect Congress' intent that a finding of 
recklessness should be sufficient to satisfy the scienter element 
for manipulative conduct, including for false statements and 
omissions of material fact.'' ); CFA at 4 (agreeing with the 
Commission that the recklessness standard would be ``appropriate to 
protect the public and [would be] entirely consistent with the 
act''); CAPP at 1 (supporting the revised proposed Rule's scienter 
requirement); see also Greenberger at 3 (arguing against the 
addition of explicit scienter requirements, which, in his view, 
``unnecessarily inhibit[ed] the FTC from exercising its authority to 
protect the public from market manipulation by making the 
evidentiary requirements more onerous under the revised rule'').
    \125\ CFA at 4 (stating that a specific intent standard ``would 
lower the standard to allow market participants to engage in 
careless conduct'').
---------------------------------------------------------------------------

    After considering these views, the Commission believes that, 
because final Rule Section 317.3(a) prohibits overt fraudulent or 
deceptive acts - which can have no beneficial effect in any setting - 
the extreme recklessness standard embodied in the term ``knowingly'' is 
appropriate.\126\ A higher ``specific intent to manipulate the market'' 
standard could, in principle, permit harmful conduct to escape coverage 
under the final Rule, simply because the actor did not intend to 
manipulate the market. The Commission has concluded that such a 
regulatory gap is unacceptable. The Commission also has concluded that 
requiring a showing of extreme recklessness, rather than ordinary 
recklessness or negligence, provides sufficient assurance that final 
Rule Section 317.3(a) does not capture inadvertent conduct or mere 
mistakes.\127\
---------------------------------------------------------------------------

    \126\ The Commission has clarified the definition of 
``knowingly'' from that set forth in the RNPRM. In particular, 
establishing liability under Section 317.3(a) will require 
establishing only that an alleged violator ``knew or must have known 
that his or her conduct was fraudulent or deceptive.'' The words 
``with actual or constructive knowledge such that a person'' have 
been deleted. Significantly, this modification is not intended to 
change the meaning of ``knowingly'' or limit the types of evidence 
that the Commission may rely upon in establishing the requisite 
scienter, including both direct and circumstantial evidence of a 
defendant's state of mind. See Section IV.C.3. in ``Definitions'' 
for further discussion.
    \127\ As the Commission observed in the NPRM and the RNPRM, the 
FERC adopted a similar approach in its interpretation of its anti-
manipulation rule, noting that ``[t]he final rule is not intended to 
regulate negligent practices or corporate mismanagement, but rather 
to deter or punish fraud in wholesale energy markets.'' 71 FR at 
4246; see 73 FR at 48328 n.123; 74 FR at 18318 n.168.
---------------------------------------------------------------------------

    Thus, to violate final Rule Section 317.3(a), a person must engage 
in the proscribed conduct ``knowing'' that it is fraudulent or 
deceptive. For example, a trader's state of mind must encompass more 
than just carrying out the ministerial function of transmitting false 
information to a price reporting service. Rather, there must be 
evidence that the trader knew or must have known that the information 
transmitted was false.\128\
---------------------------------------------------------------------------

    \128\ The scienter element would also be satisfied if the trader 
is acting at the behest of another person within the same 
organization who ``knew or must have known'' that the conduct would 
operate as a fraud or deceit. The Commission does not intend, 
however, that the requisite state of mind be imputed across persons 
within an organization. See also Section IV.D.1.a. above for a 
discussion of the level of involvement necessary to establish 
liability under the final Rule.
---------------------------------------------------------------------------

    As discussed above in Section IV.C.3., the Commission has adopted, 
in part, the ``extreme recklessness'' standard set out by the United 
States Court of Appeals for the Seventh Circuit.\129\ The Commission 
has determined that establishing a violation of final Rule Section 
317.3(a) requires, at a minimum, evidence that the defendant's conduct 
presents a danger of misleading buyers or sellers that is either known 
to the

[[Page 40697]]

defendant or is so obvious that the actor must have been aware of 
it.\130\
---------------------------------------------------------------------------

    \129\ See Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 
1045 (7th Cir.), cert. denied, 434 U.S. 875 (1977) (quoting Franke 
v. Midwestern Okla. Dev. Auth., 428 F. Supp. 719, 725 (W.D. Okla. 
1976)).
    \130\ As also discussed above in Section IV.C.3, proof of 
scienter under final Rule Section 317.3(a) shall not require 
evidence of a departure from ordinary standards of care.
---------------------------------------------------------------------------

b. Materiality Standard
    Section 317.3(a) of the final Rule prohibits conduct that operates 
or would operate as a fraud or deceit, ``including the making of any 
untrue statement of material fact.'' In the RNPRM, the Commission 
proposed a materiality standard that treated a fact as material if 
there was a substantial likelihood that a reasonable market participant 
would consider it important in making a decision to transact because 
the material fact significantly altered the total mix of information 
available.\131\ No commenter addressed the materiality standard in the 
RNPRM. Consequently, the Commission adopts that same standard for the 
final Rule.
---------------------------------------------------------------------------

    \131\ 74 FR at 18320; see also 73 FR at 48326. See Basic Inc. v. 
Levinson, 485 U.S. 224, 231-32 (1988) (```[A]n omitted fact is 
material if there is a substantial likelihood that a reasonable 
shareholder would consider it important in deciding how to vote.''' 
(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 
(1976))); see, e.g., Greenhouse v. MCG Capital Corp., 392 F.3d 650, 
658-659 (4th Cir. 2004) (holding a false statement regarding the 
educational background of the defendant company's Chairman of the 
Board to be immaterial).
---------------------------------------------------------------------------

    The Commission notes that the element of materiality limits the 
coverage of the final Rule. Consistent with securities law, the 
Commission intends that it not be sufficient simply to show that any 
particular person would have found any particular piece of information 
of interest,\132\ or to show that any particular person would have 
acted differently but for the particular piece of information at 
issue.\133\ Rather, the assessment requires a factual inquiry into 
whether the statement, omission, or datum at issue is of a character 
that would significantly affect the decision-making process of a 
reasonable market participant because it alters the mix of available 
information. This assessment, in turn, depends upon the specific 
circumstances surrounding the particular statement or omission.
---------------------------------------------------------------------------

    \132\ See Basic Inc., 485 U.S. at 234 (``The role of the 
materiality requirement is . . . to filter out essentially useless 
information that a reasonable investor would not consider 
significant, even as part of a larger `mix' of factors to consider 
in making his investment decision.'' (citing TSC Indus., 426 U.S. at 
448-49)); see also 3 Thomas Lee Hazen, Treatise on Securities 
Regulation 12.9[3], at 284 (5th ed. 2005). In addition, it should be 
noted that a purchaser or seller is not necessarily entitled to all 
information relating to each of the circumstances surrounding a 
particular transaction. See, e.g., In re Apple Computer Sec. Litig., 
886 F.2d 1109, 1115 (9th Cir. 1989) (concluding that ``the 
defendant's failure to disclose material information may be excused 
where that information has been made credibly available to the 
market by other sources''); see also In re Northern Telecom Ltd. 
Sec. Litig., 116 F. Supp. 2d 446, 459 (S.D.N.Y. 2000) (``A company 
is generally not obligated to disclose internal problems because 
`[t]he securities laws do not require management to bury the 
shareholders' in internal details . . . .'' ) (internal quotations 
omitted).
    \133\ See, e.g., Folger Adam Co. v. PMI Indus., Inc., 938 F.2d 
1529, 1533 (2d Cir. 1991) (``No matter how stated, however, it is 
well-established that a material fact need not be outcome-
determinative; that is, it need not be important enough that it 
`would have caused the reasonable investor to change his vote.''' 
(quoting TSC Indus., 426 U.S. at 449)).
---------------------------------------------------------------------------

    Guided by securities law precedent, the Commission intends to 
determine on a case-by-case basis whether a statement (or omission) is 
material. In this regard, the Commission views false or deceptive 
statements as material whenever they are of a character likely to be 
significant to participants in the broader market. Examples might 
include false representations to the government about a company's 
current inventory or refinery operating status, or false 
representations about the price or volumes of past transactions to a 
private price reporting service.
c. Other Language in Section 317.3(a)
    Final Rule Section 317.3(a) - like the initially proposed Rule and 
the revised proposed Rule - prohibits misrepresentations of fact 
because such misrepresentations clearly constitute fraudulent or 
deceptive conduct.\134\ As detailed in the RNPRM, many commenters and 
workshop participants agreed that such conduct harms the marketplace 
and should be prohibited.\135\ Prohibiting misrepresentations of 
material fact is further supported by the enforcement approach of other 
agencies. Final Rule Section 317.3(a) thus continues to include the 
phrase ``the making of any untrue statement of material fact'' in order 
to make this prohibition clear.
---------------------------------------------------------------------------

    \134\ As the NPRM noted, Section 317.3(a) of the proposed Rule 
was intended to provide a clear ban on ``the reporting of false or 
misleading information to government agencies, to third-party 
reporting services, and to the public through corporate 
announcements.'' 73 FR at 48326. Congress gave the Commission 
authority under Section 812, a separate provision from Section 811, 
to prohibit any person from reporting false or misleading 
information related to the wholesale price of petroleum products 
only if it is required by law to be reported to a federal department 
or agency. The prohibitions embodied in Section 812 became effective 
with the enactment of EISA on December 19, 2007. See 42 U.S.C. 
17302.
    \135\ 74 FR at 18320.
---------------------------------------------------------------------------

    A few commenters mistakenly believed that the phrase ``operates or 
would operate as a fraud or deceit'' found in Section 317.3(a) would 
obviate the scienter requirement for that provision.\136\ The 
Commission disagrees with this interpretation. The Commission notes, 
for example, that SEC Rule 10b-5 contains an identical phrase, and the 
Supreme Court has interpreted Rule 10b-5 as requiring proof of 
scienter.\137\ Thus, the Commission has determined not to alter the 
phrase ``operates or would operate as a fraud'' for purposes of final 
Rule Section 317.3(a). In keeping the phrase, moreover, the Commission 
intends that Section 317.3(a) reach conduct that defrauds or deceives 
another person or that could have the capacity to do so.
---------------------------------------------------------------------------

    \136\ CFDR contended that the revised proposed Rule's language 
``operates or would operate as a fraud'' was at odds with the Rule's 
``knowingly'' standard because federal securities case law 
interprets that phrase as establishing a non-scienter standard. CFDR 
at 4. ISDA also suggested that the language ``operates as a fraud'' 
confuses the scienter standard because the standard merely 
``require[s] intent to engage in any volitional act that happens to 
`operate as a fraud.''' ISDA at 8.
    \137\ See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).
---------------------------------------------------------------------------

3. Section 317.3(b): Omission of Material Information Provision
    Final Rule Section 317.3(b), like revised proposed Rule Section 
317.3(b), prohibits fraudulent or deceptive statements that are 
misleading as a result of the intentional omission of material facts, 
where that omission distorts or is likely to distort market conditions 
for a covered product.\138\ Thus, material omissions from a statement 
that is otherwise literally true may, under the circumstances present 
at the time the statement is made, render that statement 
misleading.\139\ The Commission therefore has determined that 
prohibiting intentional omissions of material facts that distort or are 
likely to distort market conditions is consistent with both the 
objectives of EISA and the Commission's larger mandate to protect 
consumers.\140\
---------------------------------------------------------------------------

    \138\ As noted above, final Rule Section 317.3(b) substitutes 
the phrase ``is likely'' for the word ``tends'' in revised proposed 
Rule Section 317.3(b). See discussion in Section IV.D.3.b. below.
    \139\ See McMahan & Co. v. Wherehouse Ent., Inc., 900 F.2d 576, 
579 (2d Cir. 1990) (``Some statements, although literally accurate, 
can become, through their context and manner of presentation, 
devices which mislead investors.'' ).
    \140\ A violation of final Rule Section 317.3(b) requires that 
the person make an affirmative statement that is rendered misleading 
by reason of a material omission. The Commission generally does not 
intend that Section 317.3(b) reach silence where no statement has 
been made.
---------------------------------------------------------------------------

    The record contains comments from both those who supported and 
those who objected to a specific omissions provision.\141\ Those 
objecting argued

[[Page 40698]]

that the Section 317.3(b) prohibition on omissions would lead firms to 
adopt compliance programs that curtail voluntary disclosures, thereby 
``denying markets the benefits of the information that is readily 
disclosed today.''\142\ Some commenters also questioned whether a 
specific omissions prohibition would be ``efficacious'' given the 
absence of any existing disclosure obligations in wholesale petroleum 
markets.\143\ Still other commenters stated that revised proposed 
Section 317.3(b) was superior to the initially proposed Rule because 
the revisions enhanced the Rule's clarity regarding the coverage of 
material omissions.\144\
---------------------------------------------------------------------------

    \141\ Compare Greenberger at 3 (contending that the omissions 
provision provided ``adequate protection to industry 
participants''), with API at 12 (recommending that ``the Commission 
eliminate liability for omissions''). Some commenters favored the 
alternative rule language because it did not explicitly prohibit 
material omissions. See API at 19 (urging ``the Commission to adopt 
the proposed alternative rule language and clarify that it would 
cover affirmative statements but not omissions''); CFDR at 4 n.3.
    \142\ API at 17; see, e.g., Argus at 5 (``[C]ompanies may prefer 
to disclose no information, instead of risking violating the rule's 
prohibition on omissions . . . .'' ).
    \143\ CFDR at 2, 4 (contending that an express prohibition on 
material omissions created ``the premise of a disclosure duty [to 
be] formally implicated by a rule''); see also Sutherland at 3 
(``[W]holesale market participants are sophisticated parties who 
generally [would] not require special remediation for . . . 
omissions . . . .'' ).
    \144\ See, e.g., ISDA at 2 (stating that the Commission's 
modifications to the omissions provision ``made an important 
enhancement to the ability of firm[s] to ensure compliance with the 
rule''); Platts at 5 (noting that the revised proposed Rule's 
omissions provision was ``a step forward'' with regard to clarity 
and simplicity); CAPP at 2 (``With [the modifications to the 
omissions provisions], CAPP concur[red] that the revised proposed 
Rule would serve the public interest.'' ).
---------------------------------------------------------------------------

    After reviewing the record, the Commission has decided to retain a 
separate prohibition on material omissions because this conduct may 
serve as a vehicle to manipulate wholesale petroleum markets even in 
the absence of affirmative disclosure requirements. In promulgating 
final Rule Section 317.3(b), the Commission has accommodated both 
Section 811's injunction against market manipulation and commenters' 
concerns that a separate omissions provision might discourage voluntary 
disclosures that increase beneficial market transparency. The 
Commission has achieved this accommodation by crafting the Section 
317.3(b) prohibition of material omissions so that it differs from the 
Section 317.3(a) prohibition on overt fraud or deceit in two 
significant ways.
    First, Section 317.3(b) contains a stricter scienter standard than 
does Section 317.3(a). Specifically, establishing a final Rule Section 
317.3(b) violation requires showing that the alleged violator 
``intentionally fail[ed] to state a material fact that under the 
circumstances render[ed] a statement made by such person misleading.'' 
This scienter standard requires that the alleged violator intend to 
mislead by means of a material omission rather than simply being aware 
of the potential risk posed by his or her conduct; that is, the actor 
must have intentionally omitted information from a statement with the 
further intent to make the statement misleading.
    Second, final Rule Section 317.3(b) contains a limiting proviso not 
found in final Rule Section 317.3(a). The proviso requires that the 
wrongful conduct at issue distort or be likely to distort market 
conditions. The limiting proviso provides businesses with the assurance 
that omissions occurring in the context of routine business activity 
are not actionable unless they otherwise undermine market participants' 
ability to rely on the integrity of market data.
    Final Rule Section 317.3(b) - like final Rule Section 317.3(a) - 
also does not impose an affirmative duty to disclose information or a 
duty to correct or update information.\145\ Rather, Section 317.3(b) 
applies only if a covered entity voluntarily provides information - or 
is compelled to provide information by statute, order, or regulation - 
but then intentionally fails to disclose a material fact that makes the 
information misleading. Section 317.3(b) therefore does not require 
businesses to provide commercially sensitive information to any other 
person absent a pre-existing legal obligation to do so.\146\ Similarly, 
it is not a violation of final Rule Section 317.3(b) to withhold market 
intelligence that a company gathered about market conditions.\147\ The 
failure to provide such information would not establish a violation of 
this provision, even if the counter-party in a commercial negotiation 
would have acted differently if such information had been revealed. In 
addition, the Commission does not generally intend that Section 
317.3(b) reach routine bilateral commercial negotiations, which are 
unlikely to inject false information into the market process.\148\
---------------------------------------------------------------------------

    \145\ 74 FR at 18321 (noting that the revised proposed Rule 
``would not . . . impose an affirmative duty to disclose 
information). This determination comports with the suggestions of 
several commenters. See, e.g., Sutherland at 3 (arguing against 
imposing mandatory disclosure obligations on wholesale petroleum 
market participants); CAPP at 2 (``CAPP remains concerned that 
mandatory disclosure is a problematic approach in the absence of 
specific, empirical evidence of damaging practices or incidences of 
specific harm.'' ); Argus at 5 (stating that imposing mandatory 
disclosure obligations would lead to confusion and would place a 
severe burden on market participants); ISDA at 12-13 (stating that 
``[s]uch a requirement would create a level of regulatory risk that 
would deter market participants from communicating in any 
substantive way with market participants''); API at 23 (arguing that 
a final rule should not impose a duty to correct or update 
information).
    \146\ SEC Rule 10b-5 similarly does not create an affirmative 
duty of disclosure. See, e.g., In re Time Warner Inc. Sec. Litig., 9 
F.3d 259, 267 (2d Cir. 1993) (``[A] corporation is not required to 
disclose a fact merely because a reasonable investor would very much 
like to know that fact.'' (citing Basic Inc. v. Levinson, 485 U.S. 
224, 239 n. 17 (1988))).
    \147\ API asked the Commission to preserve market participants' 
incentive to gather and evaluate market intelligence by promulgating 
a rule that does not require disclosure of such information. API at 
32-33 & n.37. API argued that collecting and evaluating market 
intelligence is costly, and market participants are unlikely to 
incur these costs if they are required to disclose such information. 
API at 32. The Commission agrees that a party should not be required 
to reveal such market intelligence in order to comply with the final 
Rule. For example, a party would not be required to reveal estimates 
of its future inventory levels to a counter-party during a business 
negotiation.
    \148\ In these instances, parties may seek redress under state 
laws for contract or tort claims. These laws are more appropriate in 
such cases. For example, state law better addresses issues such as 
whether a counter-party in a commercial transaction had an 
independent ability to verify representations made by a party or was 
otherwise entitled to rely on such representations in reaching an 
agreement; whether a contract was entered into under false 
pretenses; or whether a party had a pre-existing legal duty to 
provide information to a counter-party.
---------------------------------------------------------------------------

a. Scienter Standard: A Person Must Intentionally Make a Misleading 
Statement By Intentionally Omitting Material Information
    As noted, Section 317.3(b)'s scienter standard requires that a 
person must have intentionally omitted information from a statement 
with the further intent to make the statement misleading. 
Significantly, this standard does not require a showing that the actor 
intended to manipulate a wholesale petroleum market or otherwise 
intended to have an impact on the larger market. It requires only that 
the actor intended to make a statement misleading by means of an 
intentional omission of material fact. The Commission has determined to 
apply the scienter requirement both to the omission of a material fact 
and to the making of a misleading statement.\149\
---------------------------------------------------------------------------

    \149\ See also ISDA at 8 (asking the Commission to clarify that 
the Rule's scienter standard applies to a fraudulent act rather than 
to any volitional act).
---------------------------------------------------------------------------

    Several commenters expressed general support for the Commission's 
decision to adopt an ``intentional'' standard for Section 
317.3(b).\150\ Some

[[Page 40699]]

commenters further urged the Commission to elevate the standard to a 
``specific intent to manipulate the market'' because, in their view, it 
would better delineate limits on the conduct reached by the Rule.\151\ 
The Commission has determined not to do so because intentional 
misleading statements can be of a character that undermines market 
participants' overall trust in the integrity of market data, regardless 
of whether an actor had a specific intent to have that effect or to 
benefit from it. The Commission believes, furthermore, that the 
``intentional'' standard provides market participants and their counsel 
with as much clarity as practicable regarding the evidentiary burden 
necessary to establish this element of a Section 317.3(b) violation. 
Because a violation of Section 317.3(b) requires proof of intentional 
conduct, it does not reach inadvertent conduct or mere mistakes.
---------------------------------------------------------------------------

    \150\ See, e.g., API at 3 (stating the Commission ``correctly 
recognize[d] the shortcomings of a knowledge / extreme recklessness 
standard as applied to omissions''); CAPP at 1 (approving of the 
revised scienter requirement); Argus at 2 (supporting the addition 
of ``intentionally'' as ``a significant effort to reduce [a] 
chilling effect and . . . draw[s] the rule closer to the existing 
[CEA] language''); see also Platts at 5 (praising revisions to the 
omissions provision, which it believed enhanced the clarity and 
simplicity of the Rule). But see, e.g., Greenberger at 3 (stating 
that the addition of ``intentionally'' to Section 317.3(b) 
``unnecessarily inhibit[ed] the FTC from exercising its authority to 
protect the public from market manipulation . . . .'' ).
    \151\ See, e.g., CFDR at 4-5 (``[P]roof of intent to corrupt the 
integrity of market pricing processes or an intent otherwise to 
cause false, fictitious and artificial market prices must be a 
necessary element of any anti-manipulation rule.'' ); API at 3 
(arguing that specific intent ``is necessary to limit the rule to 
the market-distorting conduct that Congress intended to address in 
Section 811'').
---------------------------------------------------------------------------

b. The Omission of Material Information Must Distort or Be Likely to 
Distort Market Conditions within a Wholesale Market for a Covered 
Product
    Under the revised proposed Rule, a statement made intentionally 
misleading by reason of the intentional omission of a material fact 
would violate the Rule only if its dissemination ``distorts or tends to 
distort market conditions'' respecting any covered product. Final Rule 
Section 317.3(b) retains this limiting market conditions language, 
except that the Commission has determined to replace the phrase ``tends 
to distort'' with the phrase ``is likely to distort.'' The Commission 
has effected this modification in order to eliminate the possibility of 
confusion, by clarifying that final Rule Section 317.3(b) focuses upon 
those material omissions that are likely to distort market conditions. 
Thus, establishing a violation of final Rule Section 317.3(b) expressly 
requires proof that a material omission ``distorts or is likely to 
distort market conditions'' for a covered product.\152\
---------------------------------------------------------------------------

    \152\ The edit is consistent with the views of one commenter. 
See API at 38 (arguing that the concept of ``tendency'' may lead to 
unintended interpretations).
---------------------------------------------------------------------------

    Commenters presented various views on the desirability of a market 
conditions proviso.\153\ ISDA opined that ``the distorts or tends to 
distort requirement . . . will benefit markets . . . because it should 
remove from the ambit of the rule, private and other conversations and 
conduct that do not distort or tend to distort markets and with which 
the Commission should not be concerned.''\154\ Other commenters, 
however, including ISDA, continued to argue that establishing a rule 
violation should require proof of an actual price effect.\155\ CFDR 
argued that the proposed market conditions proviso was an ``imprecise 
and poor substitute for effects on market pricing,'' and that a market 
manipulation rule should reach conduct that ``corrupt[s] the integrity 
of market pricing.''\156\ Senator Cantwell opposed the proviso, arguing 
that such language would unnecessarily limit the Commission's ability 
to ``hold[] accountable those who employ any manipulative `device or 
contrivance' in wholesale oil and petroleum markets.''\157\
---------------------------------------------------------------------------

    \153\ One commenter, ATAA, expressed general support for the 
market conditions proviso, but ultimately preferred the proposed 
Rule as articulated in the NPRM, which does not contain a market 
conditions proviso or similar limiting language. ATAA at 1, 5.
    \154\ ISDA at 13-14.
    \155\ See, e.g., API at 34 (preferring a required showing of 
market effects); ISDA at 9 (``The Commission should require proof of 
market effect to find a violation of the rule because public policy 
only should be concerned with fraudulent activity that actually 
affects market prices and, therefore, presumably harms wholesale 
petroleum products markets.'' ); see also Sutherland at 4 
(encouraging the Commission to require that prohibited behavior 
impact the market).
    \156\ CFDR at 5; see also API at 38 (```Tends to distort' is an 
imprecise term, subject to expansive interpretations imposing 
liability even on omissions that, in the circumstances, had no real 
chance of affecting a covered market or consumers.'' ).
    \157\ Senator Cantwell at 4. Commenters also expressed support 
for the Commission decision to reject market or price effects 
requirements. See Senator Cantwell at 3-4; CFA at 6; Greenberger at 
3.
---------------------------------------------------------------------------

    The Commission has concluded that the limiting proviso advances the 
effective implementation of Section 811 in an important way. It ensures 
that Section 317.3(b) prohibits only those material omissions that can 
be expected to manipulate a wholesale petroleum market. In so doing, it 
gives market participants the certainty that statements containing 
material omissions will not be challenged if they do not adversely 
threaten the reliability of data in a broader wholesale petroleum 
market.
    Significantly, however, by the proviso's own terms, establishing a 
final Rule Section 317.3(b) violation does not require proof of a 
specific price effect. Rather, the phrase ``distorts or is likely to 
distort market conditions'' speaks only to the ability of market 
participants to rely on the integrity of market data in making purchase 
and sales decisions. Misleading statements of the kind that distort or 
are likely to distort market data taint the integrity of the market 
process.\158\
---------------------------------------------------------------------------

    \158\ As discussed earlier in Section III., markets absorb all 
available information - good or bad - and continually adjust price 
signals and other market data to any new information. When economic 
actors can presume that the data of the market have not been 
artificially manipulated, they are able to rely on the data to make 
decisions that they believe will advance their individual economic 
objectives. Participants can no longer trust that the data of the 
market reflect underlying market fundamentals. The proviso contained 
in final Rule Section 317.3(b) thus focuses enforcement of that 
provision on conduct that inherently threatens confidence in the 
market's integrity. When material omissions are of the character 
that can be expected to distort observable market data, those 
decisions are perforce riskier and the efficiency of the market 
process is reduced. Market participants and the public are less able 
to trust the underlying integrity of the market process.
---------------------------------------------------------------------------

    In this regard, the core principle embodied in the proviso centers 
around the character and the likely market reach of the false or 
misleading information that is injected into the market by means of 
misleading statements. Specifically, establishing a violation of final 
Rule Section 317.3(b) requires showing that the character and likely 
market reach of such false or misleading information is likely to make 
market data less reliable. This evidentiary burden is lower than 
proving a specific price effect or any other specific effect on a 
market metric.
    Focusing Section 317.3(b) enforcement on conduct that inherently 
threatens market integrity because it is conduct that distorts or is 
likely to distort market conditions, thus, achieves the objectives of 
Section 811 while limiting interference with legitimate business 
activity. For example, proof that a person intentionally reported price 
information to a private data reporting company that is in the business 
of providing price reports to the marketplace - and that the person 
intentionally omitted material facts that the reporting company 
required to be reported - would satisfy the market conditions proviso. 
Similarly, intentionally omitting material information in statements in 
order to mislead government officials during a national emergency would 
violate Section 317.3(b) because such conduct can be expected to 
threaten the integrity of the data within the market at large and on 
which market participants rely.

[[Page 40700]]

c. Materiality
    Section 317.3(b) of the final Rule prohibits the omission of a 
``material fact.'' The standard for materiality for Section 317.3(b) is 
the same as that for Section 317.3(a), which is discussed above in 
Section IV.D.2.b. Thus, a fact is material if there is a substantial 
likelihood that a reasonable market participant would consider it 
important in making a decision to transact, because the material fact 
significantly alters the total mix of information available.\159\ The 
Commission has concluded that limiting the reach of final Rule Section 
317.3(b) to an omission of a ``material fact'' provides market 
participants with clarity as to the type of omission that is covered by 
Section 317.3(b).
---------------------------------------------------------------------------

    \159\ This standard conforms to the approach the Commission 
followed in the RNPRM and NPRM with respect to materiality. 74 FR at 
18323 n.214; 73 FR at 48326.
---------------------------------------------------------------------------

E. Section 317.4: Preemption

    Section 815(c) of EISA states that ``[n]othing in this subtitle 
preempts any State law.''\160\ Consequently, Section 317.4 of the final 
Rule contains a standard preemption provision used in other FTC rules, 
making it clear that the Commission does not intend to preempt the laws 
of any state or local government, except to the extent of any 
conflict.\161\ This approach is consistent with the position stated in 
the RNPRM, where the Commission explained that there is no conflict, 
and therefore no preemption, if state or local law affords equal or 
greater protection from the manipulative conduct prohibited by the 
revised proposed Rule.\162\
---------------------------------------------------------------------------

    \160\ 42 U.S.C. 17305.
    \161\ See, e.g., Disclosure Requirements and Prohibitions 
Concerning Franchising, 16 CFR 436.10(b).
    \162\ 74 FR at 18323.
---------------------------------------------------------------------------

    No commenters addressed preemption of state law. Accordingly, the 
final Rule adopts the preemption provision proposed in the RNPRM.\163\
---------------------------------------------------------------------------

    \163\ See 74 FR at 18323.
---------------------------------------------------------------------------

F. Section 317.5: Severability

    Section 317.5 of the final Rule contains a standard severability 
provision used in other FTC rules.\164\ This provision makes clear that 
if any part of the Rule is held invalid by a court, the rest of the 
Rule will remain in effect. The Commission received no comments on this 
issue. Accordingly, the Commission adopts without alteration the 
severability provision proposed in the RNPRM.\165\
---------------------------------------------------------------------------

    \164\ See, e.g., Telemarketing Sales Rule, 16 CFR 310.9; Used 
Motor Vehicle Trade Regulation Rule, 16 CFR 455.7.
    \165\ 74 FR at 18323.
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G. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (``RFA'')\166\ generally 
requires a description and analysis of proposed and final rules that 
will have a significant economic impact on a substantial number of 
small entities. Specifically, the RFA requires an agency to provide an 
Initial Regulatory Flexibility Analysis (``IRFA'')\167\ with a proposed 
Rule and a Final Regulatory Flexibility Analysis (``FRFA'')\168\ with a 
final rule, if any. The Commission is not required to do such analyses 
if a rule would not have such an economic effect.\169\
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    \166\ 5 U.S.C. 601-612.
    \167\ 5 U.S.C. 603.
    \168\ 5 U.S.C. 604.
    \169\ See 5 U.S.C. 605(b).
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    Although the scope of the final Rule may reach a substantial number 
of small entities as defined in the RFA, the Commission does not 
believe that the Rule will have a significant economic impact on those 
businesses.\170\ The Commission specifically requested comments on the 
economic impact of the revised proposed Rule and received none.\171\ 
Given that there are no reporting requirements, document or data 
retention provisions, or any other affirmative duties imposed, it is 
unlikely that the final Rule imposes costs to comply beyond standard 
costs associated with ensuring that behavior and statements are not 
fraudulent or deceptive. Therefore, the Commission believes that the 
final Rule will not have a significant economic impact on a substantial 
number of small entities. Notwithstanding this belief, the Commission 
has prepared a FRFA, as set forth below.
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    \170\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small-business concern'' as a business that is ``independently 
owned and operated and which is not dominant in its field of 
operation.'' 15 U.S.C. 632(a)(1). As noted above, Section 317.2(d) 
of the final Rule defines a ``person'' as ``any individual, group, 
unincorporated association, limited or general partnership, 
corporation, or other business entity.''
    \171\ Although no commenters addressed whether the revised 
proposed Rule would have an economic impact on small entities, some 
commenters contended that the revised proposed Rule would be costly 
and burdensome to the industry. None of these commenters submitted 
data for the Commission to analyze any such economic impact of the 
Rule. See, e.g., API at 8 (adhering to the revised proposed Rule 
will force participants to enact burdensome compliance procedures 
raising industry costs and restricting efficient and procompetitive 
conduct); SIGMA at 2 (including rack sales in the definition of 
``wholesale'' will impose significant compliance requirements on the 
gasoline marketing industry).
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1. Need for and Objectives of the Final Rule
    Section 811 grants the Commission the authority to promulgate a 
rule that is ``necessaryor appropriate in the public interest or for 
the protection of United States citizens.''\172\ As discussed above, 
the Commission believes that promulgating the final Rule is appropriate 
to prevent manipulative practices affecting wholesale markets for 
petroleum products, and the Commission has tailored the Rule 
specifically to reach manipulative behavior that likely impacts those 
commodities described in Section 811. The final Rule supplements the 
Commission's existing antitrust and consumer protection law enforcement 
tools.
---------------------------------------------------------------------------

    \172\ 42 U.S.C. 17301.
---------------------------------------------------------------------------

2. Significant Issues Raised by the Public Comment, Summary of the 
Agency's Assessment of these Issues, and Changes, if any, Made in 
Response to Such Comments
    The Commission received 155 comments in response to its ANPR, 34 
comments in response to its NPRM, and 17 comments in response to its 
RNPRM. Further, the Commission staff sought additional comment by 
holding a one-day public workshop to discuss the issues arising from 
the comments. The comments and the workshop transcript are part of the 
rulemaking record and are available at the Commission's website.\173\
---------------------------------------------------------------------------

    \173\ See (http://www.ftc.gov./ftc/oilgas/rules.htm).
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    Based on the record in this proceeding, the Commission has 
concluded that the final Rule should be a broad, anti-fraud rule guided 
by the principles of SEC Rule 10b-5. Like the initially proposed Rule 
and the revised proposed Rule, the final Rule broadly prohibits 
fraudulent or deceptive conduct. However, in response to commenters' 
concerns, the Commission has modified the final Rule in three ways to 
clarify the type of conduct that would violate the Rule and to mitigate 
chilling of legitimate conduct.
    First, the final Rule, like the revised proposed Rule, consolidates 
the initially proposed Rule's three-part conduct prohibition into a 
two-part conduct prohibition that ``more clearly and precisely 
denote[s] the unlawful conduct [the Rule] prohibits.''\174\ Second, 
each paragraph of the conduct prohibition in the final Rule contains an 
explicit and tailored scienter standard. The different scienter 
standards address concerns raised by commenters that the initially 
proposed Rule, which had only

[[Page 40701]]

a single, scienter standard, would have unacceptably chilled legitimate 
conduct.\175\ Third, one paragraph of the final Rule, the omissions 
paragraph, contains a market conditions proviso that will limit the 
paragraph to only those omissions that can be expected to result in 
manipulative conduct harmful to consumers without interfering with 
legitimate business conduct.
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    \174\ 74 FR at 18316.
    \175\ See id.
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3. Description and Estimate of Number of Small Entities Subject to the 
Final Rule Or Explanation Why no Estimate is Available
    The final Rule applies to entities engaging in the purchase or sale 
of crude oil, gasoline, or petroleum distillates. These potentially 
include petroleum refiners, blenders, wholesalers, and dealers 
(including terminal operators that sell covered commodities). Although 
many of these entities are large international and domestic 
corporations, the Commission believes that a number of these covered 
entities may be small entities.\176\ According to the SBA size 
standards, and utilizing SBA source data, the Commission estimates that 
between approximately 1,700 and 5,200 covered entities would be 
classified as small entities.\177\
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    \176\ Directly covered Directly covered entities under the final 
Rule are classified as small businesses under the Small Business 
Size Standards component of the North American Industry 
Classification System (``NAICS'') as follows: petroleum refineries 
(NAICS code 324110) with no more than 1,500 employees nor greater 
than 125,000 barrels per calendar day total Operable Atmospheric 
Crude Oil Distillation capacity; petroleum bulk stations and 
terminals (NAICS code 424710) with no more than 100 employees; and 
petroleum and petroleum products merchant wholesalers (except bulk 
stations and terminals) (NAICS code 424720) with no more than 100 
employees. See Small Business Administration (``SBA''), Table of 
Small Business Size Standards Matched to North American Industry 
Classification System Codes (Aug. 22, 2008), available at (http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf).
    \177\ The SBA publication providing data on the number of firms 
and number of employees by firm does not provide sufficient 
precision to gauge the number of small businesses that may be 
impacted by the final Rule accurately. The data are provided in 
increments of 0-4 employees, fewer than 20 employees, and fewer than 
500 employees. SBA, Employer Firms, & Employment by Employment Size 
of Firm by NAICS Codes, 2006, available at (http://www.sba.gov/advo/research/us06_n6.pdf). Thus, for the 228 petroleum refiners listed, 
188 show that they have less than 500 employees. Although the 
Commission is unaware of more than five refiners with less than 
125,000 barrels of crude distillation capacity, the data may be kept 
by refinery, rather than refiner. Similar problems exist for the 
bulk terminal and bulk wholesale categories listed above, in which 
the relevant small business cut-off is greater than 100 employees. 
Although the Commission sought additional comment on the number of 
small entities covered by the revised proposed Rule, it received 
none. Accordingly, the small business data set forth in this FRFA 
are the best estimates available to the Commission at this time.
---------------------------------------------------------------------------

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Final Rule, Including an Estimate of the 
Classes of Small Entities that Will Be Subject to the Rule and the Type 
of Professional Skills that Will Be Necessary to Comply
    The final Rule does not contain any requirement that covered 
entities create, retain, submit, or disclose any information. 
Accordingly, the Rule will impose no recordkeeping or related data 
retention and maintenance or disclosure requirements on any covered 
entity, including small entities.\178\ Given that there are no 
reporting requirements, document or data retention provisions, or any 
other affirmative duties imposed, it is unlikely that the final Rule 
imposes costs to comply beyond standard costs (or skills) associated 
with ensuring that behavior and statements are not fraudulent or 
deceptive.
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    \178\ Final Rule Section 317.3(b) applies only if a covered 
entity voluntarily provides information - or is compelled to provide 
information by statute, order, or regulation - but then 
intentionally fails to disclose a material fact that makes the 
information misleading. See Section IV.D.3 above.
---------------------------------------------------------------------------

5. Steps the Agency Has Taken to Minimize Any Significant Economic 
Impact on Small Entities, Consistent With the Stated Objectives of the 
Applicable Statutes, Including the Factual, Policy, and Legal Reasons 
for Selecting the Alternative(s) Finally Adopted, and Why Each of the 
Significant Alternatives, if Any, Was Rejected
    The final Rule is narrowly tailored to reduce compliance burdens on 
covered entities, regardless of size. In formulating the Rule, the 
Commission has taken several significant steps to minimize potential 
burdens. As an initial matter, the Rule contains no recordkeeping or 
disclosure obligations. The Rule focuses on preventing manipulation and 
deception in wholesale petroleum markets. The Commission has declined 
to include specific conduct or duty requirements, such as a duty to 
supply product or a duty to provide access to pipelines and terminals. 
The Rule also clarifies that covered entities need not disclose price, 
volume, or other data to the market.

H. Paperwork Reduction Act

    The final Rule does not impose any new information collection 
requirements under the provisions of the Paperwork Reduction Act of 
1995 (``PRA'').\179\
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    \179\ 44 U.S.C. 3501-3521. Under the PRA, federal agencies must 
obtain approval from the Office of Management and Budget (``OMB'') 
for each collection of information they conduct or sponsor. 
``Collection of information'' means agency requests or requirements 
that members of the public submit reports, keep records, or provide 
information to a third party. 44 U.S.C. 3502(3)(A).
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List of Subjects in 16 CFR Part 317

0
Accordingly, for the reasons set forth in the preamble, the Commission 
amends Title 16, Chapter I, Subchapter C of the Code of Federal 
Regulations by adding part 317 to read as follows:

PART 317 - PROHIBITION OF ENERGY MARKET MANIPULATION RULE

Sec.
317.1 Scope.
317.2 Definitions.
317.3 Prohibited practices.
317.4 Preemption.
317.5 Severability.

    Authority: 42 U.S.C. 17301-17305; 15 U.S.C. 41-58.


Sec.  317.1  Scope.

    This part implements Subtitle B of Title VIII of The Energy 
Independence and Security Act of 2007 (``EISA''), Pub. L. 110-140, 121 
Stat. 1723 (December 19, 2007), codified at 42 U.S.C. 17301-17305. This 
Rule applies to any person over which the Federal Trade Commission has 
jurisdiction under the Federal Trade Commission Act, 15 U.S.C. 41 et 
seq.


Sec.  317.2  Definitions.

    The following definitions shall apply throughout this Rule:
    (a) Crude oil means any mixture of hydrocarbons that exists:
    (1) In liquid phase in natural underground reservoirs and that 
remains liquid at atmospheric pressure after passing through separating 
facilities; or
    (2) As shale oil or tar sands requiring further processing for sale 
as a refinery feedstock.
    (b) Gasoline means:
    (1) Finished gasoline, including, but not limited to, conventional, 
reformulated, and oxygenated blends; and
    (2) Conventional and reformulated gasoline blendstock for oxygenate 
blending.
    (c) Knowingly means that the person knew or must have known that 
his or her conduct was fraudulent or deceptive.
    (d) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.

[[Page 40702]]

    (e) Petroleum distillates means:
    (1) Jet fuels, including, but not limited to, all commercial and 
military specification jet fuels; and
    (2) Diesel fuels and fuel oils, including, but not limited to, No. 
1, No. 2, and No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.
    (f) Wholesale means:
    (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 or upstream of the terminal 
rack level.


Sec.  317.3  Prohibited practices.

    It shall be unlawful for any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, to:
    (a) Knowingly engage in any act, practice, or course of business - 
including the making of any untrue statement of material fact - that 
operates or would operate as a fraud or deceit upon any person; or
    (b) Intentionally fail to state a material fact that under the 
circumstances renders a statement made by such person misleading, 
provided that such omission distorts or is likely to distort market 
conditions for any such product.


Sec.  317.4  Preemption.

    The Federal Trade Commission does not intend, through the 
promulgation of this Rule, to preempt the laws of any state or local 
government, except to the extent that any such law conflicts with this 
Rule. A law is not in conflict with this Rule if it affords equal or 
greater protection from the prohibited practices set forth in Sec.  
317.3.


Sec.  317.5  Severability.

    The provisions of this Rule are separate and severable from one 
another. If any provision is stayed or determined to be invalid, it is 
the Commission's intention that the remaining provisions shall continue 
in effect.
    By direction of the Commission, Commissioner Kovacic dissenting.

Donald S. Clark
Secretary
    Note: The following text will not be codified in Title 16 of the 
Code of Federal Regulations.

Statement of Chairman Jon Leibowitz

    When Congress passed the Energy Independence and Security Act of 
2007, it authorized the Commission to develop a rule to prevent 
manipulation in wholesale energy markets.\1\ The goal of Congress was 
for the Commission to detect and prevent market manipulation that might 
lead to higher gas prices for consumers. After a thorough and intensive 
process, the Commission has started to do just that. The rule issued by 
the Commission today is a broad anti-fraud measure that will help us 
prohibit conduct that harms consumers but that may not violate 
antitrust laws.
---------------------------------------------------------------------------

    \1\ Congress authorized the rule in section 811 of the Act using 
language from an earlier bill offered by Senator Maria Cantwell. See 
Petroleum Consumer Price Gouging Protection Act, S. 1263, 110th 
Cong. Sec. Sec.  4 and 5(a) (2007).
---------------------------------------------------------------------------

    We are going to use this authority as aggressively as possible to 
stop market manipulation that drives up prices at the pump.
    Trade associations representing the oil industry have voiced 
concern about the new rule. They argue that it will chill business 
conduct in the service of stopping something that they don't believe is 
happening in the first place. These industry advocates have proposed 
several specific changes that would weaken the rule - requiring a 
higher scienter standard under the general liability provision, 
requiring an explicit market distortion element for the entire rule, 
and entirely eliminating liability for omissions.\2\
---------------------------------------------------------------------------

    \2\ See generally, Comments of the American Petroleum Institute 
and the National Petrochemical and Refiners Association in Response 
to Revised Notice of Proposed Rulemaking (May 20, 2009), available 
at (http://www.ftc.gov/os/comments/marketmanipulation3/541354-00009.pdf).
---------------------------------------------------------------------------

    I am fundamentally opposed to these proposals. They would 
effectively neuter the rule and, as my colleague Commissioner Rosch 
notes in his concurring statement, they would undermine Congressional 
intent. For example, the proposed changes would make it harder - if not 
impossible - to prosecute those who manipulate the market by 
intentionally omitting critical information from their communications, 
even when those omissions distort market conditions and raise gasoline 
prices for all Americans. Such omissions can be every bit as deceptive 
as any other type of fraudulent conduct, so it is crucial that we have 
the ability to prevent and prosecute them. A rule that does not allow 
us to go after such conduct would limit our ability to protect 
consumers.
    The rule as proposed already takes into account legitimate industry 
concerns. In fact, we responded directly to those concerns by modifying 
the more expansive proposal in the draft rule we released last summer, 
originally based on the Securities and Exchange Commission rule
    10b-5, to accommodate industry worries.\3\ The current rule, as 
modified, strikes the right balance; it gives the Commission the 
authority to stop fraudulent conduct in energy markets but does not 
undermine appropriate business activity.
---------------------------------------------------------------------------

    \3\ See, e.g., id. at 1 (``In particular, API and NPRA welcome 
the Commission's recognition that wholesale petroleum markets differ 
significantly from securities markets and the Commission's efforts 
to tailor the proposed rule to reflect those differences.'' ).
---------------------------------------------------------------------------

    It is only the fact that gas prices were over four dollars per 
gallon a year ago that keeps us from thinking that prices are too high 
today. If we water down this rule as suggested by the industry, it 
would hinder our ability to stop manipulation of wholesale petroleum 
markets. That would undermine the intent of Congress, and undermine the 
efforts of the Commission to protect consumers and do our job.

Dissenting Statement of Commissioner William E. Kovacic

    Since early 2008, a task force of the staff of the Federal Trade 
Commission (FTC) has devoted extraordinary care, skill, and effort to 
the development of a rule to implement Title VIII of The Energy 
Independence and Security Act of 2007.\1\ Their performance on this 
project - from the early research on the possible content of a rule 
through the public consultations and drafting of options for the 
Commission's consideration - is a model of superb public 
administration. I thank and congratulate them.
---------------------------------------------------------------------------

    \1\ 42 U.S.C. Sec. Sec.  17301-17305.
---------------------------------------------------------------------------

    I disagree with the choices taken by the Commission today in 
promulgating a Final Rule. In connection with wholesale transactions 
involving ``crude oil, gasoline, or petroleum distillates,'' Section 
317.3(a) of the Commission's Final Rule makes it illegal to ``Knowingly 
engage in any act, practice, or course of business . . . that operates 
or would operate as a fraud or deceit'' on any person.\2\ Section 
317.3(b) of the Final Rule makes it illegal for a party 
``[i]ntentionally'' to ``fail to state a material fact'' where ``such 
omission distorts or is likely to distort market conditions . . . 
.''\3\ Compared to Paragraph 3(a), Paragraph 3(b) imposes a more 
demanding scienter requirement. To violate Paragraph 3(b), the person 
must act ``intentionally'' rather than ``knowingly,'' a state of mind 
that exists when the person ``knew or must have known that his or her 
conduct was

[[Page 40703]]

fraudulent or deceptive.''\4\ Paragraph 3(b) also contains the 
requirement, missing in Paragraph 3(a), that the behavior ``distort 
market conditions.''
---------------------------------------------------------------------------

    \2\ Prohibitions on Market Manipulation, Statement of Basis and 
Purpose and Final Rule (to be codified at 16 C.F.R. Sec.  317.3(a)).
    \3\ Id. (to be codified at 16 C.F.R. Sec.  317.3(b)).
    \4\ Id. (to be codified at 16 C.F.R. Sec.  317.2(c)).
---------------------------------------------------------------------------

    I dissent from the Commission's promulgation of the Final Rule. To 
my mind, a minimally acceptable rule would have departed from the 
Commission's Final Rule in two major respects. First, it would have 
incorporated into Paragraph 3(a) the requirements that the conduct be 
intentional and either actually or likely distorts market conditions. 
Second, the rule would not have contained a separate command dealing 
with omissions, thus deleting Paragraph 3(b) of the Commission's Final 
Rule.\5\ As it stands, I cannot say that the Final Rule is in the 
public interest.\6\
---------------------------------------------------------------------------

    \5\ Such a rule would be similar to the alternative rule 
proposed in the Revised Notice of Proposed Rule Making, 74 Fed. Reg. 
18304, 18327 (Apr. 22, 2009).
    \6\ See 42 U.S.C. Sec.  17301 (permitting the Commission to 
adopt a rule to implement the Energy Independence and Security Act 
if it finds such a rule to be in the ``public interest'').
---------------------------------------------------------------------------

    When implemented, the Final Rule will cover a vast number of 
routine transactions - literally thousands daily - in petroleum 
products. These transactions are the indispensable means by which 
gasoline, diesel fuel, and jet fuel move from refineries to end users. 
Society has an immense stake in avoiding unnecessary disruption to 
these undertakings. Violations of the Commission's Final Rule are 
punishable with civil penalties of $1 million per violation, and each 
day on which the misconduct continues is treated as a separate 
offense.\7\
---------------------------------------------------------------------------

    \7\ 42 U.S.C. Sec.  17304.
---------------------------------------------------------------------------

    By reason of the drafting choices described above, the Commission 
has taken inadequate precautions to ensure that the aims of the 
underlying legislation are attained without imposing social costs that 
swamp the benefits Congress sought to achieve. Because the Final Rule's 
requirements are unlikely to proscribe only genuinely harmful conduct, 
there is a serious danger that it will impede routine contracting that 
is benign or procompetitive and thereby make Americans worse off by 
damaging the flow of commerce in petroleum products. The Commission's 
extensive work since the 1960s in reviewing petroleum industry mergers 
and allegations of anticompetitive conduct ought to have made the 
agency more attentive to these considerations. The FTC's previous 
inquiries have determined that price fluctuations for petroleum 
products result principally from market forces: prices decline when 
supply rises or demand falls.\8\ This experience does not gainsay the 
potential harm that consumers could suffer from manipulation of market 
prices. It does suggest, however, that the contributions of a rule 
against market manipulation for petroleum products to the solution of 
the nation's larger energy problems are likely to be small. At the same 
time, the breadth of the substantive commands of the Commission's Final 
Rule, its applicability to an expansive range of routine contracting, 
and the severity of the penalties for violations create serious 
possibilities for deterring suppliers from participating in 
transactions that pose no threat to consumers. By incorporating the 
scienter and market distortion elements of Paragraph 3(b) into 
Paragraph 3(a), the Commission could have minimized these hazards. It 
unfortunately chose not to do so.
---------------------------------------------------------------------------

    \8\ See Federal Trade Commission, Investigation of Gasoline 
Price Manipulation and Post-Katrina Gas Price Increases (2006), at 
(http://www.ftc.gov/reports/060518PublicGasolinePricesInvestigationReportFinal.pdf); Federal Trade Commission, Gasoline Price Changes: 
The Dynamic of Supply, Demand, and Competition (2005), at (http://www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf).
---------------------------------------------------------------------------

    The inclusion in the Final Rule of the omissions provision, 
Paragraph 3(b), is a second regrettable decision. A proscription on 
certain acts, practices, or courses of business, alone is sufficiently 
broad to capture fraudulent omissions. Because the Final Rule is 
modeled on SEC Rule 10b-5, a separate and distinct omissions 
prohibition could invite subsequent interpretations that the Final Rule 
requires affirmative disclosures. Although the Commission explains in 
the Statement of Basis and Purpose that accompanies the Final Rule that 
it does not interpret Paragraph 3(b) as requiring an affirmative duty 
to disclose,\9\ it is likely that other adjudicators will be called on 
to interpret the Final Rule. These adjudicators may not reach the same 
conclusion as the Commission, especially to the extent that the Final 
Rule becomes the subject of litigation in state courts under state 
consumer protection laws.\10\
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    \9\ See Statement of Basis and Purpose and Final Rule at 33 n.92 
(``Consistent with its position in the NPRM and the RNPRM, the 
Commission currently does not expect to impose specific conduct or 
duty requirements such as . . . a duty to disclose, or a duty to 
update or correct information.'' ).
    \10\ Some states model their consumer protection laws on the FTC 
Act, and some allow private causes of action under these laws. 
Because the Energy Independence and Security Act provides that a 
violation of the Act ``shall be treated as an unfair or deceptive 
act or practice proscribed under a rule issued under Section 
18(a)(1)(B) of the [FTC Act],'' 42 U.S.C. Sec.  17303, it is not 
unreasonable to assume that the Final Rule may provide a cause of 
action under some state consumer protection laws.
---------------------------------------------------------------------------

    In light of this substantial liability risk, the omissions 
component may well force the many firms that engage in legitimate 
transactions with their competitors on a daily basis to choose between 
two problematic paths of conduct: one way to avoid a potentially 
wrongful omission is to disclose more private information to your 
rival; a second approach is to limit investments in acquiring 
potentially relevant marketplace information and to reduce the number 
of encounters that could be examined through the lens of the 
Commission's Final Rule. Neither alternative is good for consumers. 
Excessive disclosure of private information among competitors threatens 
competition and is precisely the type of conduct that the FTC 
investigates and challenges under the antitrust laws. A competition 
agency should not be in the business of telling rivals to give each 
other more information about their business operations. A decision to 
gather less marketplace information or to engage in fewer transactions 
promises to translate into higher prices that may not accurately 
reflect underlying supply and demand conditions.
    Last, the Commission's Final Rule has the capacity to deflect 
needed attention away from root causes of the country's energy problems 
and to divert effort away from the pursuit of effective solutions. For 
example, there is a legitimate debate to be had about whether gasoline 
prices adequately reflect external costs, such as those associated with 
environmental damage, national security, or traffic congestion. We also 
might usefully debate the proper mix of increased domestic oil 
production, nuclear power, or renewable energy sources to enhance 
energy security. By focusing valuable attention on measures that have 
little capacity to address these and other fundamental issues, the 
Commission's Final Rule may serve to relax the urgency that the nation 
ought to feel to devise approaches that truly come to grips with the 
larger dimensions of the energy problem.

Concurring Statement of Commissioner J. Thomas Rosch

    I concur in the form of the Oil Price Manipulation Rule that the 
Commission has adopted. In doing so, however, I want to make it clear 
that I agree with Commissioner Kovacic's misgivings. The ``conduct'' 
prong of the Rule does

[[Page 40704]]

not require proof of an exercise of market power having an adverse 
impact on the market as a whole, as is normally required in challenges 
to conduct under the Sherman Act. Further, it is not clear that the 
state of mind that must be proved establishes a sufficient limiting 
principle. On the other hand, although the ``omissions'' prong of the 
Rule does arguably require proof that the omission adversely impacts 
the market as a whole, like Rule 10b-5 it does not require proof of the 
state of mind that the ``conduct'' prong requires and hence may not 
establish a sufficiently limiting principle either. The net result is 
that the Rule may chill oil companies from, among other things, 
voluntarily providing their data to independent data-reporting firms, 
as they do now, for fear that they may be held liable for an 
inadvertent omission. That would be unfortunate because at least in 
some circumstances, having abundant data of that sort can be pro-
competitive. See United States v. United States Gypsum Co., 438 U.S. 
422 (1978); see also U.S. Dep't of Justice and Federal Trade Comm'n, 
Statement of Antitrust Enforcement Policy in Health Care, Statement 6 
(``Provider Participation in Exchanges of Price and Cost Information'') 
(August 1996), available at (http://www.usdoj.gov/atr/public/guidelines/0000.pdf). It would be especially unfortunate if the Rule 
were interpreted or applied so as to permit follow-on private actions.
    All of this said, however, Congress apparently intended that the 
Commission fashion a Rule that goes beyond the Sherman Act and that 
resembles SEC Rule 10b-5. See Federal Trade Commission, Prohibitions on 
Market Manipulation in Subtitle B of Title VIII of the Energy 
Independence and Security Act of 2007, at 14 n.44 (July 28, 2009).\1\ I 
believe that we must adhere to the Congressional intent in this regard. 
In exercising prosecutorial discretion, however, I, for one, intend to 
keep these misgivings in mind.
---------------------------------------------------------------------------

    \1\ In addition to the text of Section 811, which reflects 
congressional intent that the Commission look to SEC Rule 10b-5 in 
crafting a market manipulation rule, I also find the statements of 
Sen. Cantwell (the bill's sponsor) which are consistent with this 
text persuasive. See 151 Cong. Rec. S10238 (daily ed. Sept. 20, 
2005) (statement of Sen. Cantwell introducing S. 1735, a bill to 
Improve the Federal Trade Commission's Ability to Protect Consumers 
from Price-Gouging During Energy Emergencies, which was reintroduced 
in the 110th Congress as S.1263); New Haven Bd. of Educ. v. Bell, 
465 U.S. 512, 526-27 (1982) (``Although the statements of one 
legislator made during debate may not be controlling, Senator Bayh's 
remarks, as those of the sponsor of the language ultimately 
enacted'' - in a context where ``no committee report discusses the 
provisions'' - ``are an authoritative guide to the statute's 
construction.'' ).
---------------------------------------------------------------------------

Federal Register

Attachment A

RNPRM Commenters

    Association of Oil Pipe Lines (``AOPL'')
    American Petroleum Institute and the National Petrochemical and 
Refiners Association (``API'')
    Argus Media Inc. (``Argus'')
    Air Transport Association of America, Inc. (``ATAA'')
    Maria Cantwell, United States Senator, State of Washington 
(``Senator Cantwell'')
    Canadian Association of Petroleum Producers (``CAPP'')
    Consumer Federation of America, Mark Cooper, Director of Research 
(``CFA'')
    New York City Bar Association Committee on Futures & Derivatives 
Regulation (``CFDR'')
    U. S. Commodity Futures Trading Commission, Terry S. Arbit, General 
Counsel (``CFTC'')
    Michael Greenberger (``Greenberger'')
    Illinois Petroleum Marketers Association (``IPMA'')
    International Swaps and Derivatives Association, Inc. (``ISDA'')
    Futures Industry Association, CME Group, Managed Funds Association, 
Intercontinental Exchange, Inc., National Futures Association (``MFA'')
    Platts (``Platts'')
    Petroleum Marketers Association of America (``PMAA'')
    Society of Independent Gasoline Marketers of America (``SIGMA'')
    Sutherland Asbill & Brennan LLP (``Sutherland'')

Federal Register

Attachment B

NPRM Commenters

    Association of Oil Pipe Lines (``AOPL'')
    American Petroleum Institute (``API'')
    Argus Media Inc. (``Argus'')
    American Trucking Associations, Inc. (``ATA'')
    Air Transport Association of America, Inc. (``ATAA'')
    Andrew Boxer, Ellis Boxer & Blake (``Boxer'')
    Sharon Brown-Hruska, National Economic Research Associates, Inc. 
(``Brown-Hruska'')
    California Attorney General, Edmund G. Brown Jr. (``CA AG'')
    Canadian Association of Petroleum Producers (``CAPP'')
    Consumer Federation of America, Mark Cooper, Director of Research 
(``CFA1''; ``CFA2'')
    New York City Bar Association, Committee on Futures & Derivatives 
Regulation (``CFDR'')
    U. S. Commodity Futures Trading Commission, Terry S. Arbit, General 
Counsel(``CFTC (Arbit)'')
    U. S. Commodity Futures Trading Commission, Bart Chilton, 
Commissioner (``CFTC (Chilton)'')
    John Q. Public (``Consumer'')
    Flint Hills Resources, LP (``Flint Hills'')
    Winfried Fruehauf, National Bank Financial (``Fruehauf'')
    James D. Hamilton, University of California, San Diego 
(``Hamilton'')
    Illinois Petroleum Marketers Association (``IPMA'')
    International Swaps and Derivatives Association, Inc. (``ISDA'')
    Futures Industry Association, CME Group, Managed Funds Association, 
Intercontinental Exchange, Inc., National Futures Association (``MFA'')
    Michigan Petroleum Association/Michigan Association of Convenience 
Stores (``MPA'')
    Mississippi Attorney General, Jim Hood (``MS AG'')
    Lisa Murkowski, United State Senator, State of Alaska 
(``Murkowski'')
    Timothy J. Muris and J. Howard Beales, III (``Muris'')
    Navajo Nation, Resolute Natural Resources Company, and Navajo 
Nation Oil and Gas Company (``Navajo Nation'')
    Nebraska Petroleum Marketers & Convenience Store Association 
(``NPCA'')
    National Petrochemical and Refiners Association (``NPRA'')
    Craig Pirrong, The University of Houston: Bauer College of Business 
(``Pirrong'')
    Plains All American Pipeline, L.P. (``Plains'')
    Platts (``Platts'')
    Petroleum Marketers Association of America (``PMAA'')
    Society of Independent Gasoline Marketers of America (``SIGMA'')
    Sutherland Asbill & Brennan LLP (``Sutherland'')
    David J. Van Susteren, Fulbright & Jaworski LLP (``Van Susteren'')

Federal Register

Attachment C

Workshop Participants

    American Bar Association Section of Antitrust Law's Fuel & Energy 
Industry Committee (``ABA Energy''): Bruce McDonald, Jones Day LLP
    Association of Oil Pipe Lines (``AOPL''): Linda G. Stuntz, Stuntz, 
Davis & Staffier, PC
    American Petroleum Institute (``API''): Jonathan Gimblett, 
Covington & Burling LLP

[[Page 40705]]

    American Petroleum Institute (``API''): Robert A. Long, Jr., 
Covington & Burling LLP
    Argus Media Inc. (``Argus''): Dan Massey
    Consumer Federation of America (``CFA''): Mark Cooper
    New York City Bar Association, Committee on Futures & Derivatives 
Regulation (``CFDR''): Charles R. Mills, K&L Gates
    CME Group (``CME''): De'Ana Dow
    Flint Hills Resources, LP (``Flint Hills''): Alan Hallock
    International Swaps and Derivatives Association, Inc. (``ISDA''): 
Athena Y. Velie, McDermott, Will & Emery LLP
    Futures Industry Association, CME Group, Managed Funds Association, 
Intercontinental Exchange, Inc., National Futures Association 
(``MFA''): Mark D. Young, Kirkland & Ellis LLP
    Resolute Natural Resources Company (``Navajo Nation''): James 
Piccone
    Navajo Nation Oil and Gas Corporation (``Navajo Nation''): Perry 
Shirley
    National Petrochemical and Refiners Association (``NPRA''): Susan 
S. DeSanti, Sonnenschein Nath & Rosenthal LLP
    National Petrochemical and Refiners Association (``NPRA''): Charles 
T. Drevna
    Craig Pirrong, The University of Houston: Bauer College of Business 
(``Pirrong'')
    Platts (``Platts''): John Kingston
    Petroleum Marketers Association of America (``PMAA''):
    Robert Bassman, Bassman, Mitchell & Alfano, Chtd.
    Society of Independent Gasoline Marketers of America (``SIGMA''): 
James D. Barnette, Steptoe & Johnson LLP
    Society of Independent Gasoline Marketers of America (``SIGMA''): 
R. Timothy Columbus, Steptoe & Johnson LLP
    David J. Van Susteren, Fulbright & Jaworski LLP (``Van Susteren'')

Federal Register

Attachment D

ANPR Commenters

    American Bar Association/Section of Antitrust Law (``ABA'')
    Association of Oil Pipe Lines (``AOPL'')
    American Petroleum Institute and the National Petrochemical and 
Refiners Association (``API'')
    Patrick Barrett (``Barrett'')
    Lawrence Barton (``Barton'')
    Dave Beedle (``Beedle'')
    Stanley Bergkamp (``Bergkamp'')
    Louis Berman (``Berman'')
    Bezdek Associates, Engineers PLLC (``Bezdek'')
    Katherine Bibish (``Bibish'')
    John Booke (``Booke'')
    Bradley (``Bradley'')
    Jeremy Bradley (``J. Bradley'')
    Charles Bradt (``Bradt'')
    Wendell Branham (``Branham'')
    Lorraine Bremer (``Bremer'')
    Gloria Briscolino (``Briscolino'')
    Rick Brownstein (``Brownstein'')
    Byrum (``Byrum'')
    Canadian Association of Petroleum Producers (``CAPP'')
    Jeff Carlson (``Carlson'')
    Jacquelynne Catania (``Catania'')
    Marie Cathey (``Cathey'')
    New York City Bar, Association Committee on Futures & Derivatives 
Regulation (``CFDR'')
    U. S. Commodities Futures Trading Commission (``CFTC'')
    Manuel Chavez (``Chavez'')
    Michael Chudzik (``Chudzik'')
    D. Church (``Church'')
    Earl Clemons (``Clemons'')
    Dan Clifton (``Clifton'')
    Kim Cruz (``Cruz'')
    Jerry Davidson (``Davidson'')
    Don Deresz (``Deresz'')
    Charlene Dermond (``Dermond'')
    Kimberly DiPenta (``DiPenta'')
    Penny Donaly (``Donaly1'')
    Penny Donaly (``Donaly2'')
    Penny Donaly (``Donaly3'')
    Penny Donaly (``Donaly4'')
    Deep River Group, Inc. (``DRG'')
    Harold Ducote (``Ducote'')
    Mary Dunaway (``Dunaway'')
    Econ One Research, Inc. (``Econ One'')
    Terri Edelson (``Edelson'')
    Kevin Egan (``Egan'')
    DJ Ericson (``Ericson'')
    Mark Fish (``Fish'')
    Flint Hills Resources, LP (``Flint Hills'')
    Bob Frain (``Frain'')
    Joseph Fusco ( ``Fusco'' )
    Tricia Glidewell (``Glidewell'')
    Robert Gould (``Gould'')
    James Green (``Green'')
    Michael Greenberger (``Greenberger'')
    Christine Gregoire, Governor, State of Washington (``Gregoire'')
    Hagan (``Hagan'')
    Toni Hagan (``Toni'')
    Charles Hamel (``Hamel'')
    Chris Harris (``Harris'')
    Thomas Herndon (``Herndon'')
    Johnny Herring (``Herring'')
    Hess Corporation (``Hess'')
    David Hill (``Hill'')
    Hopper (``Hopper'')
    Sharon Hudecek (``Hudecek'')
    IntercontinentalExchange, Inc. (``ICE'')
    Institute for Energy Research (``IER'')
    Independent Lubricant Manufacturers Association (``ILMA'')
    Illinois Petroleum Marketers Association (``IPMA'')
    International Swaps and Derivatives Association, Inc. (``ISDA'')
    Micki Jay (``Jay'')
    Kenneth Jensen (``Jensen'')
    Paul Johnson (``Johnson'')
    Tacie Jones (``Jones'')
    Joy (``Joy'')
    John Kaercher (``Kaercher'')
    Kas Kas (``Kas'')
    Kipp (``Kipp'')
    Paola Kipp (``P. Kipp'')
    Jerry LeCompte (``LeCompte'')
    Kurt Lennert (``Lennert'')
    Loucks (``Loucks'')
    Robert Love (``Love'')
    R. Matthews (``Matthews'')
    Catherine May (``May'')
    Mike Mazur (``Mazur'')
    Sean McGill (``McGill'')
    Kathy Meadows (``Meadows'')
    Futures Industry Association, CME Group, Managed Funds Association, 
IntercontinentalExchange, National Futures Association (``MFA'')
    Bret Morris (``Morris'')
    Theresa Morris-Ramos (``Morris-Ramos'')
    Scott Morosini (``Morosini'')
    Timothy J. Muris and J. Howard Beales, III (``Muris'')
    Navajo Nation Resolute Natural Resources Company and Navajo Nation 
Oil and Gas Company (``Navajo Nation'')
    Laurie Nenortas (``Nenortas'')
    James Nichols (``Nichols'')
    Virgil Noffsinger (``Noffsinger'')
    Noga (``Noga'')
    Richard Nordland (``Nordland'')
    National Propane Gas Association (``NPGA'')
    Kerry O'Shea, (``O'Shea'')
    Jeffery Parker (``Parker'')
    Pamela Parzynski (``Parzynski'')
    Brook Paschkes (``Paschkes'')
    Brijesh Patel (``Patel'')
    Stefanie Patsiavos (``Patsiavos'')
    P D (``PD'')
    Guillermo Pereira (``Pereira'')
    James Persinger (``Persinger'')
    Mary Phillips (``Phillips'')
    Plains All American Pipeline, LLP (``Plains'')
    Platts (``Platts'')
    Betty Pike (``Pike'')
    Petroleum Marketers Association of America (``PMAA'')
    Joel Poston (``Poston'')
    Radzicki (``Radzicki'')
    Gary Reinecke (``Reinecke'')
    Steve Roberson (``Roberson'')
    Shawn Roberts (``Roberts'')
    Linda Rooney (``Rooney'')
    Mel Rubinstein (``Rubinstein'')secret (``secret'')
    Joel Sharkey (``Sharkey'')
    Society of Independent Gasoline Marketers of America (``SIGMA'')
    Daryl Simon (``Simon'')
    David Smith (``D. Smith'')

[[Page 40706]]

    Donald Smith (``Do. Smith'')
    Mary Smith (``M. Smith'')
    Donna Spader (``Spader'')
    Stabila (``Stabila'')
    Alan Stark (``A. Stark'')
    Gary Stark (``G. Stark'')
    Robert Stevenson (``Stevenson'')
    Ryan Stine (``Stine'')
    Maurice Strickland (``Strickland'')
    Sutherland, Asbill, and Brennan, LLP (``Sutherland'')
    L. D. Tanner (``Tanner'')
    Dennis Tapalaga (``Tapalaga'')
    Tennessee Oil Marketers Association (``TOMA'')
    Theisen (``Theisen'')
    Greg Turner (``Turner'')
    U. S. citizen (``U.S. citizen'')
    U. S. Department of Justice, Criminal Fraud Section (``USDOJ'')
    Jeff Van Hecke (``Van Hecke'')
    Louis Vera (``Vera'')
    Thomas Walker (``Walker'')
    Victoria Warner (``Warner'')
    Lisa Wathen (``Wathen'')
    Watson (``Watson'')
    Gary Watson (``G. Watson'')
    Joseph Weaver (``Weaver'')
    Webb (``Webb'')
    Vaughn Weming (``Weming'')
    Douglas Willis (``Willis'')
[FR Doc. E9-19257 Filed 8-11-09: 8:45 am]
BILLING CODE 6750-01-S