Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 67657 

1 17 CFR 145.9. 

2See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

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

LawRegulation/OTCDERIVATIVES/index.htm. 

3Pursuant to Section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

4 7 U.S.C. 1 et seq. (2006). 5 7 U.S.C. 12a(5). 

Statement of Chairman Gary Gensler 

Investment of Customer Funds and 

Funds Held in an Account for Foreign 

Futures and Foreign Options 

Transactions 

October 26, 2010 

I support today’s Commission vote on 

the proposed rulemaking regarding the 

investment of customer segregated and 

secured amount funds. This rulemaking 

fulfills part of the Dodd-Frank Act’s 

requirement that the Commission 

remove all reliance on credit ratings 

from its regulations. In addition, the 

rule enhances protections regarding 

where derivatives clearing organizations 

(DCOs) and futures commission 

merchants (FCMs) can invest customer 

funds. The market events of the last two 

years have underscored the importance 

of prudent investment standards to 

ensure the financial integrity of DCOs 

and FCMs and of maximizing protection 

of customer funds. 

[FR Doc. 2010–27657 Filed 11–2–10; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 180 

RIN Number 3038–AD27 

Prohibition of Market Manipulation 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission is proposing rules 

to implement new anti-manipulation 

authority in section 753 of the DoddFrank Wall Street Reform and Consumer 

Protection Act. The proposed rules 

expand and codify the Commission’s 

authority to prohibit manipulation. 

DATES: Comments must be received on 

or before January 3, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number AD27, by any 

of the following methods: 

• Agency Web Site, via its Comments 

Online process: Comments may be 

submitted to: http://comments.cftc.gov. 

Follow the instructions for submitting 

comments on the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that is exempt from disclosure under the 

Freedom of Information Act, a petition 

for confidential treatment of the exempt 

information may be submitted according 

to the established procedures in CFTC 

Regulation 145.9.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from www.cftc.gov that it may deem to 

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Robert Pease, Counsel to the Director of 

Enforcement, 202–418–5863, 

rpease@cftc.gov or Mark D. Higgins, 

Counsel to the Director of Enforcement, 

202–418–5864, mhiggins@cftc.gov, 

Division of Enforcement, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1151 21st Street, NW., 

Washington, DC 20581. 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).2 Title VII of the 

Dodd-Frank Act 3 amended the 

Commodity Exchange Act (‘‘CEA’’) 4 to 

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

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

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

In addition, Title VII of the DoddFrank Act contains expanded and 

clarified authority to prohibit 

manipulative behavior. 

Section 753 of the Dodd-Frank Act 

amends section 6(c) of the CEA to 

expand the authority of the Commission 

to prohibit fraudulent and manipulative 

behavior. New CEA section 6(c)(1), 

which prohibits the use or employment 

of any manipulative or deceptive device 

or contrivance, requires the Commission 

to promulgate implementing rules 

within one year of enactment of the 

Dodd-Frank Act. The Commission also 

proposes to implement regulations 

pursuant to section 6(c)(3) of the CEA 

under its general rulemaking authority 

in section 8(a)(5) of the CEA.5

Accordingly, the Commission is 

proposing rules to address manipulative 

behavior. The Commission requests 

comment on all aspects of the proposed 

rules, as well as comment on the 

specific provisions and issues 

highlighted in the discussion below. 

II. Manipulation Under Section 753 

A. Section 753’s Amendments to the 

CEA 

Section 753 of the Dodd-Frank Act 

gives the Commission enhanced ‘‘antimanipulation authority’’ as part of its 

expanded enforcement powers. It does 

so by amending section 6(c) of the CEA 

in a number of respects. 

First, section 753 adds a new 

subsection (c)(1). Subsection (c)(1) 

broadly prohibits fraud-based 

manipulative schemes as follows: 

It shall be unlawful for any person, directly 

or indirectly, to use or employ, or attempt to 

use or employ, in connection with any swap, 

or a contract of sale of any commodity in 

interstate commerce, or for future delivery on 

or subject to the rules of any registered entity, 

any manipulative or deceptive device or 

contrivance, in contravention of such rules 

and regulations as the Commission shall 

promulgate by not later than 1 year after the 

date of enactment of the Dodd-Frank Act, 

provided no rule or regulation promulgated 

by the Commission shall require any person 

to disclose to another person nonpublic 

information that may be material to the 

market price, rate, or level of the commodity 

transaction, except as necessary to make any 

statement made to the other person in or in 

connection with the transaction not 

misleading in any material respect. 


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67658 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 

6 7 U.S.C. 13(a)(2) states that it shall be a felony 

punishable by a fine of not more than $1,000,000 

or imprisonment for not more than 10 years, or 

both, together with the costs of prosecution, for 

[a]ny person to manipulate or attempt to 

manipulate the price of any commodity in interstate 

commerce, or for future delivery on or subject to the 

rules of any registered entity, or to corner or attempt 

to corner any such commodity or knowingly to 

deliver or cause to be delivered for transmission 

through the mails or interstate commerce by 

telegraph, telephone, wireless, or other means of 

communication false or misleading or knowingly 

inaccurate reports concerning crop or market 

information or conditions that affect or tend to 

affect the price of any commodity in interstate 

commerce, or knowingly to violate the provisions 

of section 4, section 4b, subsections (a) through (e) 

of subsection 4c, section 4h, section 4o(1) or section 

19. 

7 7 U.S.C. 9, 15; see also Section 9(a) of the CEA, 

7 U.S.C. 13(a)(2). 

8While this is a new statutory provision, the 

conduct prohibited is generally prohibited by CEA 

section 9(a)(2). 

9 15 U.S.C. 78j(b). 

10Chiarella v. United States, 445 U.S. 222, 226 

(1980) (‘‘Section 10(b) was designed as a catch-all 

clause to prevent fraudulent practices’’). 

11Energy Policy Act of 2005, Public Law 109–58, 

§§ 315, 1283, 119 Stat. 594 (2005) (amending 15 

U.S.C. 717c–1; 16 U.S.C. 824v). 

12Energy Independence and Security Act of 2007, 

Public Law 110–140, §§ 811, 812, 121 Stat. 1492 

(2007) (amending 42 U.S.C. 17301, 17302). 

13 17 CFR 240.10b–5. 

14 18 CFR Part 1c (FERC Rules prohibiting energy 

market manipulation); 16 CFR Part 317 (FTC Rule 

prohibiting energy market manipulation). 

15As stated above, the amendments to CEA 

section 6 do not affect the Commission’s authority 

under section 9(a)(2). 

In addition, section 753 adds 

subsections (c)(1)(A), (B), and (C). 

Subsection (c)(1)(A) is a ‘‘Special 

Provision for Manipulation by False 

Reporting.’’ This subsection provides 

that: 

Unlawful manipulation for purposes of this 

paragraph shall include, but not be limited 

to, delivering, or causing to be delivered for 

transmission through the mails or interstate 

commerce, by any means of communication 

whatsoever, a false or misleading or 

inaccurate report concerning crop or market 

information or conditions that affect or tend 

to affect the price of any commodity in 

interstate commerce, knowing, or acting in 

reckless disregard of the fact that such report 

is false, misleading or inaccurate. 

Section 6(c)(1)(C) provides that ‘‘Good 

Faith Mistakes’’ in the transmission of 

‘‘false or misleading or inaccurate 

information to a price reporting service 

would not be sufficient to violate 

subsection (c)(1)(A).’’ 

Subsection (c)(1)(B), captioned: 

‘‘Effect on Other Law,’’ provides that 

nothing in Dodd-Frank shall affect, or be 

construed to affect, the applicability of 

CEA section 9(a)(2). Section 9(a)(2) is a 

provision in the CEA prohibiting, 

among other things, market 

manipulation and false reporting.6

Dodd-Frank Act section 753 also adds 

a new CEA section 6(c)(2), which is a 

‘‘Prohibition Regarding False 

Information.’’ A prohibition regarding 

false information was previously in 

section 6(c) of the CEA,7 but DoddFrank Act section 753 revises it to 

include not only false statements made 

in registration applications or reports 

filed with the Commission but now also 

any statement of material fact made to 

the Commission in any context. New 

section 6(c)(2) reads as follows: 

It shall be unlawful for any person to make 

any false or misleading statement of a 

material fact to the Commission, including in 

any registration application or any report 

filed with the Commission under this Act, or 

any other information relating to a swap, or 

a contract of sale of a commodity, in 

interstate commerce, or for future delivery on 

or subject to the rules of any registered entity, 

or to omit to state in any such statement any 

material fact that is necessary to make any 

statement of a material fact made not 

misleading in any material respect, if the 

person knew, or reasonably should have 

known, the statement to be false or 

misleading. 

Finally, section 753 creates a new 

CEA section 6(c)(3), entitled ‘‘other 

manipulation.’’ 8 This provision 

provides that ‘‘[i]n addition to’’ the 

prohibition in section 6(c)(1): 

it shall be unlawful for any person, directly 

or indirectly, to manipulate or attempt to 

manipulate the price of any swap, or of any 

commodity in interstate commerce, or for 

future delivery on or subject to the rules of 

any registered entity. 

B. Overview of the Commission’s 

Proposed Rules Under Section 753 

The Commission proposes two rules 

under section 753. The first rule would 

be promulgated pursuant to new CEA 

section 6(c)(1), under which rulemaking 

is mandatory and must be completed 

within one year after the date of 

enactment of the Dodd-Frank Act (July 

21, 2010). The second rule would be 

promulgated pursuant to new section 

6(c)(3), and is proposed pursuant to the 

Commission’s general rulemaking 

authority under section 8(a)(5) of the 

CEA. 

The remaining provisions of section 

753, including provisions prohibiting 

false reporting and information, are selfactuating; no rulemakings are needed to 

implement them. These new provisions 

will be automatically effective one year 

from the date of enactment of the DoddFrank Act. The Commission’s authority 

under CEA section 9(a)(2) is not affected 

by new sections 6(c)(1) or (3). 

1. Section 6(c)(1) 

The text of CEA section (c)(1) is 

patterned after section 10(b) of the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’).9 Exchange Act section 

10(b) has been interpreted as a broad, 

‘‘catch-all’’ prohibition on fraud and 

manipulation.10 Likewise, the 

Commission proposes to interpret CEA 

section 6(c)(1) as a broad, catch-all 

provision reaching fraud in all its 

forms—that is, intentional or reckless 

conduct that deceives or defrauds 

market participants. Subsection (c)(1) is 

also similar to the anti-manipulation 

authority granted to the Federal Energy 

Regulatory Commission (‘‘FERC’’) in 

sections 315 and 1283 of the Energy 

Policy Act of 2005, amending the 

Natural Gas Act and the Federal Power 

Act, respectively,11 and the Federal 

Trade Commission (‘‘FTC’’) in sections 

811 and 812 of the Energy 

Independence and Security Act of 

2007.12

The SEC promulgated Rule 10b–5 to 

implement section 10(b) of the 

Exchange Act.13 The FERC and the FTC 

have promulgated rules based on SEC 

Rule 10b–5 to implement their 

respective statutory anti-manipulation 

authority, but have modified SEC Rule 

10b–5 as appropriate to reflect their 

distinct regulatory missions and 

responsibilities.14

Guided by section 6(c)(1)’s similarity 

to Exchange Act section 10(b), the 

Commission proposes an implementing 

rule that is also modeled on SEC Rule 

10b–5, with modification to reflect the 

CFTC’s distinct regulatory mission and 

responsibilities. 

2. Section 6(c)(3) 

Before enactment of the Dodd-Frank 

Act, the Commission charged 

manipulation and attempted 

manipulation under CEA sections 6(c), 

6(d), and 9(a)(2).15 In Dodd-Frank, 

Congress provided a direct statutory 

prohibition on manipulation of prices of 

swaps, futures contracts, and 

commodities. The Commission proposes 

a rule under its general rulemaking 

authority, section 8(a)(5) of the CEA that 

mirrors the text of new CEA section 

6(c)(3). The Commission proposes to 

continue interpreting the prohibition on 

price manipulation and attempted price 

manipulation to encompass every effort 

to improperly influence the price of a 

swap, commodity, or commodity futures 

contract. 

C. The Proposed Rule Under CEA 

Section 6(c)(1) 

Pursuant to section 6(c)(1) of the CEA, 

as added by section 753(a) of DoddFrank, the Commission proposes to add 

a new Part 180. 


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Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 67659 

16 7 U.S.C. 5(b) (2006). 

17 In case law, ‘‘[t]he Commission has long 

recognized that the intent to create an artificial 

price is the sine qua non of manipulation.’’ In re 

Sumitomo Corporation, [1996–1998 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,327 at 

46,499 (CFTC May 11, 1998), citing In re Indiana 

Farm Bureau Cooperative Assoc., Inc., [1982–1984 

Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,796 

at 27,282 (CFTC Dec. 17, 1982). 

18 7 U.S.C. 13(a)(2). 

19Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 

494 (1977). 

20See, e.g., Ernst & Ernst v. Hochfelder, 425 U.S. 

185, 202–03 (1976) (holding section 10(b) of the 

Securities Exchange Act of 1934 [15 U.S.C. 78j(b)] 

and SEC Rule 10b–5 thereunder [17 CFR 240.10b– 

5], on which section 753(c)(1) and the proposed 

rule are modeled, contain ‘‘catch-all’’ clauses that 

prohibit all fraudulent securities trading schemes, 

whether typical or novel); SEC v. Zandford, 535 

U.S. 813, 819 (2002) (stating section 10(b) of the 

Exchange Act, ‘‘should be construed not technically 

and restrictively, but flexibly to effectuate its 

remedial purposes’’) (internal citations and 

quotations omitted); Superintendent of Ins. of N.Y. 

v. Bankers Life & Casualty Co., 404 U.S. 6, 12 (1971) 

(noting that section 10(b) of the Exchange Act ‘‘must 

be read flexibly, not technically and restrictively’’); 

Dennis v. United States, 384 U.S. 855, 861 (1966) 

(noting that fraud within the meaning of a statute 

prohibiting conspiracy to defraud the United States, 

18 U.S.C.A. § 371, need not be confined to the 

common law definition of fraud: Any false 

statement, misrepresentation or deceit. Instead, 

fraud ‘‘reaches any conspiracy for the purpose of 

impairing, obstructing or defeating the lawful 

function of any department of Government’’) 

(internal quotations and citations omitted); United 

States v. Richter, 610 F.Supp. 480 (N.D. Ill. 1985), 

affirmed, United States v. Mangovski, 785 F.2d 312 

(7th Cir. 1986), affirmed, United States v. 

Konstantinov, 793 F.2d 1296 (7th Cir. 1986). See 

also FERC, Prohibition of Energy Market 

Manipulation, 71 FR 4244, 4253 (Jan. 26, 2006) 

(‘‘[f]inal rule prohibits the use or employment of any 

device, scheme, or artifice to defraud. The 

Commission defines fraud generally, that is, to 

include any action, transaction, or conspiracy for 

the purpose of impairing, obstructing or defeating 

a well-functioning market’’) (citations omitted). 

21 Ernst, 425 U.S. at 192–93 (holding that scienter 

is required for private actions for damages under 

Section 10(b) and SEC Rule 10b–5); Aaron v. SEC, 

446 U.S. 680, 691 (1980) (applying Ernst to SEC 

action for injunctive relief under same provisions, 

and holding that its rationale ‘‘ineluctably leads to 

the conclusion that scienter is an element of a 

violation of § 10(b) and SEC Rule 10b–5, regardless 

of the identity of the plaintiff or the nature of the 

relief sought’’); See also Drexel Burnham Lambert, 

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

(applying same requirement to the general fraud 

provision in section 4(b) of the CEA, 7 U.S.C. 6(b)). 

22See, e.g., Ernst, 425 U.S. at 193; Hoffman v. 

Estabrook & Co., 587 F.2d 509, 516–17 (1st Cir. 

1978); Grebel v. FTP Software, Inc., 194 F.3d 185 

(1st Cir. 1999); Novak v. Kasaks, 216 F.3d 300, 308 

(2d Cir. 2000); In re Advanta, 180 F.3d 525, 535 (3d 

Cir. 1999); Ottman v. Hangar, 353 F.3d 338, 343– 

44 (4th Cir. 2003); Nathenson v. Zonagen Inc., 267 

F.3d 400, 408 (5th Cir. 2001); In re Comshare, Inc. 

Securities Litig., 183 F.3d 543, 550 (6th Cir. 1999); 

Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 

1033, 1045 (7th Cir. 1977); Fla. State Bd. of Admin. 

v. Green Tree Fin. Corp., 270 F.3d 645, 654 (8th Cir. 

2001); In Re Silicon Graphics Sec. Litig., 183 F.3d 

970, 977 (9th Cir. 1999); Howard v. Everex, 228 F.3d 

1057, 1064 (9th Cir. 2000); City of Philadelphia v. 

Fleming Cos., 264 F.3d 1245, 1258, 1260 (10th Cir. 

2001); Bryant v. Avardo Brands, Inc., 187 F.3d 

1271, 1282 (11th Cir. 1999); Rockies Fund v. SEC, 

428 F.3d 1088, 1093 (DC Cir. 2005). 

23See, e.g., Ernst, 425 U.S. at 214; see also, Drexel 

Burnham Lambert, Inc. v. CFTC, 850 F.2d at 742, 

748 (DC Cir. 1988) (‘‘mere negligence, mistake, or 

inadvertence fails to meet [CEA] section 4b’s 

scienter requirement * * * a degree of intent 

beyond carelessness or negligence’’ is necessary to 

violate CEA section 4b.) (citations omitted). 

24SEC v. Zandford, 535 U.S. at 822 (‘‘It is enough 

that the scheme to defraud and the sale of securities 

coincide.’’). 

As stated in proposed § 180.1 (as set 

forth in the regulatory text of this 

proposed rule), the proposed rule is 

modeled, in part, on SEC Rule 10b–5, 

with modification to account for the 

unique regulatory mission of the CFTC. 

The discussion below is intended to 

give notice of how the Commission 

intends to interpret the elements of the 

Commission’s proposed rule. 

1. Manipulative or Deceptive Device or 

Contrivance 

One purpose of the Commodity 

Exchange Act is to ‘‘deter and prevent 

price manipulation or any other 

disruptions to market integrity.’’ 16 The 

Commission has historically relied upon 

multiple provisions of the CEA, 

including section 9(a)(2) and old section 

6(c), to prevent and deter price 

manipulation of commodities in 

interstate commerce or for future 

delivery through administrative and 

civil enforcement actions.17 Section 

9(a)(2) makes it unlawful for any person 

‘‘to manipulate or attempt to manipulate 

the price of any commodity in interstate 

commerce, or for future delivery 

***’’ 18 The Dodd-Frank Act preserves 

this purpose and the Commission’s 

authority to pursue instances of price 

manipulation and attempted price 

manipulation by making clear in new 

section 6(c)(1)(B) that nothing in section 

6(c)(1) affects the applicability of 

section 9(a)(2), and by adding new 

section 6(c)(3), both of which are 

classified as anti-manipulation 

provisions. 

The scope of new section 6(c)(1) 

differs from that of sections 9(a)(2) and 

6(c)(3) in that it prohibits the use or 

employment of ‘‘any manipulative or 

deceptive device or contrivance’’ in 

connection with any swap, or a contract 

of sale of any commodity in interstate 

commerce, or for future delivery. For 

example, this provision has been 

interpreted in the SEC Rule 10b–5 

context as prohibiting all practices ‘‘that 

are intended to mislead investors by 

artificially affecting market activity.’’ 19

Consistent with judicial interpretations 

of the scope of SEC Rule 10b–5, the 

Commission proposes that subsection 

(c)(1) be given a broad, remedial 

reading, embracing the use or 

employment, or attempted use or 

employment, of any manipulative or 

deceptive contrivance for the purpose of 

impairing, obstructing, or defeating the 

integrity of the markets subject to the 

jurisdiction of the Commission.20

2. Scienter 

The Commission proposes that, 

consistent with the Supreme Court’s 

interpretation of Exchange Act section 

10(b) and SEC Rule 10b–5, a person 

must act with ‘‘scienter’’ in order to 

violate subsection 6(c)(1) of the CEA 

and the Commission’s implementing 

rule.21 ‘‘Scienter’’ in this context refers 

to a mental state embracing intent to 

deceive, manipulate or defraud, and it 

includes recklessness.22 Just as 

negligent conduct, even gross 

negligence, will not satisfy the scienter 

requirement under Exchange Act 

section 10(b) and SEC Rule 10b–5 (nor 

under the anti-fraud provision in CEA 

section 4b),23 the Commission similarly 

proposes that only intentional or 

reckless conduct may violate CEA 

subsection 6(c)(1) and the Commission’s 

implementing rule. Moreover, the 

Commission proposes that judicial 

precedent interpreting and applying 

Exchange Act section 10(b) and SEC 

Rule 10b–5 in the context of the 

securities markets should guide, but not 

control, application of the scienter 

standard under subsection 6(c)(1) and 

the Commission’s implementing rule. 

The Commission believes that sufficient 

leeway must be given to permit 

application of the scienter standard 

under subsection 6(c)(1) and the 

Commission’s implementing rule in a 

manner that comports with the purposes 

of the CEA and the functioning of the 

markets regulated by the CFTC. 

Therefore, application of the proposed 

scienter standard under subsection 

6(c)(1) and the Commission’s 

implementing rule will be tailored to 

the facts and circumstances of each 

case. 

3. In Connection With 

Consistent with Supreme Court 

precedent interpreting the words ‘‘in 

connection with’’ in the context of 

section 10(b) of the Exchange Act and 

SEC Rule 10b–5, the Commission 

proposes that ‘‘in connection with’’ 

under (c)(1) be given the same 

meaning—that is, where the scheme to 

defraud and the transactions subject to 

the jurisdiction of the Commission 

‘‘coincide.’’ 24 Guided by securities law 

precedent, the Commission proposes 

this requirement would be satisfied 

whenever misstatements or other 

relevant conduct are made in a manner 


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67660 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 

25See United States SEC v. Pirate Investor LLC, 

580 F.3d 233, 249 (4th Cir. 2009) citing SEC v. Rana 

Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993) 

(affirming the Second Circuit’s holding in SEC v. 

Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 

1968) that SEC Rule 10b–5 is violated whenever 

assertions are made in a manner reasonably 

calculated to influence the investing public). 

26Berko v. SEC, 316 F.2d 137, 143 (2d Cir. 1963) 

(reliance, loss causation and damages not relevant 

because ‘‘the Commission’s duty is to enforce the 

remedial and preventive terms of the statute in the 

public interest, and not merely to police those 

whose plain violations have already caused 

demonstrable loss or injury’’); accord United States 

v. Davis, 226 F.3d 346, 358 (5th Cir. 2000); United 

States v. Haddy, 134 F.3d 542 (3d Cir. 1998); 

Slusser v. CFTC, 210 F.3d 783, 785–87 (7th Cir. 

2000). 

27 Id. 

28Berko, 316 F.2d at 143. 

29See, e.g., In re Hohenberg Bros. Co., [1975–1977 

Transfer Binder] No. 75–4, Comm. Fut. L. Rep. 

(CCH) ¶ 20,271 at 21,477. (CFTC Feb. 18, 1977). 

30Basic Inc. v. Levinson, 485 U.S. 224, 236 & n.14 

(1988) (‘‘A bright-line rule indeed is easier to follow 

than a standard that requires the exercise of 

judgment in the light of all the circumstances. But 

ease of application alone is not an excuse for 

ignoring the purposes of the Securities Acts and 

Congress’ policy decisions. Any approach that 

designates a single fact or occurrence as always 

determinative of an inherently fact-specific finding 

such as materiality, must necessarily be 

overinclusive or underinclusive’’). 

31 Id. at 240. See also SEC v. Talbot, 530 F.3d 

1085, 1097 (9th Cir. 2008) (quoting Arrington v. 

Merrill Lynch, Pierce, Fenner & Smith, Inc., 651 

F.2d 615, 619 (9th Cir. 1981) (‘‘Questions of 

materiality [under the securities laws] * * * 

involv[e] assessments peculiarly within the 

province of the trier of fact’’). 

32 Dodd-Frank section 6(c)(1) makes clear that ‘‘no 

rule or regulation promulgated by the Commission 

shall require any person to disclose to another 

person nonpublic information that may be material 

to the market price, rate, or level of the commodity 

transaction, except as necessary to make any 

statement made to the other person in or in 

connection with the transaction not misleading in 

any material respect.’’ 

33Cf. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 

438, 445 (1976). 

34Cf. Raab v. General Physics Corp., 4 F.3d 286, 

289–90 (4th Cir. 1993). 

35Cf. TSC Indus., 426 U.S. at 449; Basic, 485 U.S. 

at 231–32. 

36See Cargill, Inc. v. Hardin, Secretary of 

Agriculture, 452 F.2d 1154, 1163 (8th Cir. 1971) 

(‘‘The methods and techniques of manipulation are 

limited only by the ingenuity of man. The aim must 

be therefore to discover whether conduct has been 

intentionally engaged in which has resulted in a 

price that does not reflect basic forces of supply and 

demand’’). 

37See, e.g., In re DiPlacido, 2008 WL 4831204 

(CFTC 2008), aff’d in pertinent part, DiPlacido v. 

Commodity Futures Trading Comm’n, 364 

Fed.Appx. 657, 2009 WL 3326624 (2d Cir. 2009), 

Comm. Fut. L. Rep. ¶ 31,434 (noting evolution of 

analytical framework and applying it to scheme 

affecting settlement price); In re Henner, 30 Agric. 

Dec. 1151 (1971) (applying traditional framework 

sub silentio to scheme involving uneconomic 

behavior); In re Soybean Futures Litig., 892 F. Supp. 

1025, 1047 (N.D. Ill. 1995) (While the traditional 

framework derived from ‘‘market power’’ cases such 

as corners and squeezes, market power is not a 

necessary element of manipulation cases.). 

38 In re Cox, [1986–1987 Transfer Binder] Comm. 

Fut. L. Rep. (CCH) ¶ 23,786 at 34,061 (CFTC July 

15, 1987). 

39 In re Henner, 30 Agric. Dec. 1151. 

reasonably calculated to influence 

market participants.25

4. Reliance, Loss Causation and 

Damages 

Like precedent under both SEC Rule 

10b–5 and CEA section 4b, the 

Commission proposes that the common 

law elements of fraud, reliance, loss 

causation, and damages, are not needed 

to establish a violation of subsection 

6(c)(1) and the Commission’s 

implementing rule in the context of an 

enforcement action.26

Reliance, loss causation and damages 

are elements of private claims, but not 

enforcement actions brought by the 

CFTC or SEC.27 This is so because the 

government’s duty is to enforce the 

remedial and preventative terms of the 

statute in the public interest, and not 

merely to police those whose plain 

violations have already caused 

demonstrable loss or injury.28 However, 

reliance, loss causation, and damages 

may be relevant in any Commission 

determination of the appropriate 

penalty or remedy for a violation. 

5. Attempt 

The Commission’s proposed rule 

under (c)(1) explicitly prohibits 

attempted fraud. The Commission 

proposes that an ‘‘attempt’’ here, as 

elsewhere in the CEA, requires: (1) the 

requisite intent and (2) an overt act in 

furtherance of that intent.29

6. Materiality 

Sections (1)(b) and (2) of the 

Commission’s proposed rule incorporate 

the concept of materiality. In the 

securities context, the Supreme Court 

has rejected the adoption of a bright-line 

rule to determine materiality.30 Instead, 

the Supreme Court directed lower 

courts to engage in a ‘‘fact-specific 

inquiry’’ in assessing materiality in 

securities cases.31 The Commission 

proposes that the determination of 

whether a fact is ‘‘material’’ be fact and 

circumstance dependent.32 The 

Commission proposes that the standard 

for materiality should be objective 

rather than subjective.33 That is, the test 

is whether a reasonable person would 

have considered the fact material. 

Further, as a general proposition, 

statements of optimism alone (i.e., 

‘‘puffery’’) are not material.34 Finally, 

with respect to omissions, the 

Commission proposes that an omission 

be considered material if there is a 

substantial likelihood that the omitted 

fact would have been viewed by a 

reasonable person as having 

significantly altered the total mix of 

information available.35

D. The Proposed Rule Under CEA 

Section 6(c)(3) 

The Commission proposes a rule 

under new CEA section 6(c)(3) that 

mirrors the statute, making it: 

unlawful for any person, directly or 

indirectly, to manipulate or attempt to 

manipulate the price of any swap, or of any 

commodity in interstate commerce, or for 

future delivery on or subject to the rules of 

any registered entity. 

The Commission proposes to continue 

interpreting the prohibition on price 

manipulation and attempted price 

manipulation to encompass every effort 

to influence the price of a swap, 

commodity, or commodity futures 

contract that is intended to interfere 

with the legitimate forces of supply and 

demand in the marketplace.36 The 

Commission reaffirms this broad 

reading of the term ‘‘manipulation’’ with 

respect to new CEA section 6(c)(3), 

while also recognizing that 

manipulation cases are fact-intensive 

and that the law in this area will 

continue to evolve largely on a case-bycase basis. 

Early manipulation cases involving 

‘‘corners’’ and ‘‘squeezes’’ produced an 

analytical framework that has since 

been applied in a wide variety of other 

factual situations not involving ‘‘market 

power.’’ 37 That framework requires that 

the Commission establish: ‘‘(1) That the 

accused had the ability to influence 

market prices; (2) that they specifically 

intended to do so; (3) that artificial 

prices existed; and (4) that the accused 

caused the artificial prices.’’ 38 The 

Commission reaffirms this four-part test 

and, in the section to follow, discusses 

the element of artificial price. 

1. Price Affected by Factors Outside of 

the Forces of Supply and Demand 

The traditional framework for price 

manipulation has required 

demonstrating the existence of an 

‘‘artificial price.’’ In various 

circumstances, extensive economic 

analysis may not be necessary to 

demonstrate that this element has been 

met. The conclusion that prices were 

affected by a factor not consistent with 

normal forces of supply and demand 

will often follow inescapably from proof 

of the actions of the alleged 

manipulator. For example, in one of the 

landmark manipulation cases,39 the 

respondent placed an order well above 

the price he needed to pay for egg 

futures so that the closing price would 

influence the market to place a higher 

than expected value on futures contracts 

for November 1968 eggs. The 


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Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 67661 

40 30 Agric. Dec. 1151, 1194. 

41 In re DiPlacido, 2008 WL 4831204 (CFTC 

2008), aff’d in pertinent part, DiPlacido v. 

Commodity Futures Trading Comm’n, 364 

Fed.Appx. 657, 2009 WL 3326624 (2d Cir. 2009), 

Comm. Fut. L. Rep. ¶ 31,434, cert. denied, 130 S. 

Ct. 1883 (2010). 

42 Id. 

43See, e.g., In re Eisler and First West Trading, 

Inc., [2003–2004 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ¶ 29,664 at 55,837, 2004 WL 77924 

(CFTC Jan. 20, 2004) (involving direct falsification 

of data input to calculation of settlement prices). 

44 [1975–1977 Transfer Binder] No. 75–4, Comm. 

Fut. L. Rep. (CCH) ¶ 20,271 at 21,477 (emphasis 

added); see also, United States v. Reliant Energy 

Services, Inc., 420 F. Supp. 2d 1043 (N.D. Cal. 

2006). 

45See, e.g., Cargill, Inc. v. Hardin, 452 F.2d 1154 

(8th Cir. 1971); G.H. Miller & Co. v. United States, 

260 F.2d 286 (7th Cir. 1958). 

46 In re Zenith-Godley Co., Inc. and John McClay, 

Jr., 6 Agric. Dec. 900 (1947) (extravagant purchases 

of butter for the purpose of supporting milk prices). 

47 In re Henner, 30 Agric. Dec. 1155. 

48 In re DiPlacido, 2008 WL 4831204 (CFTC 

2008), aff’d in pertinent part, DiPlacido v. 

Commodity Futures Trading Comm’n, 364 

Fed.Appx. 657, 2009 WL 3326624 (2d Cir. 2009), 

Comm. Fut. L. Rep. ¶ 31,434. 

49See, e.g., In re Hohenberg Bros., [1975–1977 

Transfer Binder] No. 75–4, Comm. Fut. L. Rep. 

(CCH) ¶ 20,271 at 21,477. 

50 7 U.S.C. 19(a). 

51 5 U.S.C. 601. 

52 Id. 

Commission’s predecessor agency 

sustained the finding of the judicial 

officer that: 

[t]he inference is inescapable that the 

respondent paid more than he had to * * * 

for the purpose of causing the closing price 

to be at that high level. No further proof is 

needed to show that the settlement price was 

artificial.40

The Commission recently cited this 

‘‘conclusive presumption’’ with approval 

in In re DiPlacido.41 In that case, 

DiPlacido placed proportionately large 

orders, in an illiquid market, while 

ignoring more favorable bids and offers, 

so that closing prices for electricity 

futures would be inflated. These actions 

convinced the Commission and the 

Second Circuit Court of Appeals that the 

resulting closing prices were de facto 

illegitimate.42 Cases of this nature, 

where distorted prices foreseeably 

follow from the device employed by the 

manipulator, do not require detailed 

economic analysis of the effect on 

prices.43 As the Commission explained 

in In re Hohenberg Bros: 44

[T]o determine whether an artificial price 

has occurred one must look at the aggregate 

forces of supply and demand and search for 

those factors which are extraneous to the 

pricing system, are not a legitimate part of 

the economic pricing system, are not a 

legitimate part of the economic pricing of the 

commodity, or are extrinsic to that 

commodity market. When the aggregate 

forces of supply and demand bearing on a 

particular market are all legitimate, it follows 

that the price will not be artificial. On the 

other hand, when a price is affected by a 

factor which is not legitimate, the resulting 

price is necessarily artificial. Thus, the focus 

should not be as much on the ultimate price, 

as on the nature of the factors causing it. 

(emphasis added). 

In keeping with the fact-intensive 

nature of manipulation cases, the 

Commission recognizes that economic 

analysis may in some cases be 

appropriate to determine whether the 

conduct in question actually caused an 

artificial price. The Commission 

stresses, however, that an illegal effect 

on price can often be conclusively 

presumed from the nature of the 

conduct in question and other factual 

circumstances not requiring expert 

economic analysis. 

The Commission also emphasizes, 

consistent with the weight of existing 

precedent, that the conduct giving rise 

to a manipulation charge need not itself 

be fraudulent or otherwise illegal.45 The 

actions of the respondents in ZenithGodley,46 Henner,47 and DiPlacido,48 for 

instance, were not intrinsically 

fraudulent or otherwise illegal apart 

from violating the CEA, and the 

manipulation charges were sustained in 

each of those cases. 

2. Attempt 

The Commission’s proposed antimanipulation rule under (c)(3) explicitly 

prohibits attempted price manipulation. 

The Commission proposes that attempt 

here, as elsewhere in the CEA, requires: 

(1) The requisite intent and (2) an overt 

act in furtherance of that intent.49

III. Request for Comment 

The Commission requests comment 

on all aspects of the proposed rules. 

IV. Administrative Compliance 

A. Cost-Benefit Analysis 

Section 15(a) of the CEA 50 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA. By its terms, section 15(a) does not 

require the Commission to quantify the 

costs and benefits of a rule or to 

determine whether the benefits of the 

regulation outweigh its costs; rather, it 

requires that the Commission ‘‘consider’’ 

the costs and benefits of its actions. 

Section 15(a) further specifies that the 

costs and benefits shall be evaluated in 

light of five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

rule is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

CEA. 

With respect to benefits, the proposed 

rules would enhance the authority of 

the Commission to ensure fair and 

equitable markets. The Commission has 

determined that market participants and 

the public will benefit substantially 

from prevention and deterrence of 

manipulation. Markets that are free of 

market manipulation will function 

better as venues for price discovery and 

hedging. 

With respect to costs, the Commission 

has determined that participants in the 

markets should already have 

mechanisms in place to ensure that their 

employees and agents will refrain from 

attempting to manipulate the markets. 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters are also 

invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposed rules with their 

comment letters. 

B. Anti-Trust Considerations 

Section 15(b) of the CEA, 7 U.S.C. 

19(b), requires the Commission to 

consider the public interests protected 

by the antitrust laws and to take actions 

involving the least anti-competitive 

means of achieving the objectives of the 

CEA. The Commission believes that the 

proposed rules will have a positive 

effect on competition by improving the 

fairness and efficiency of the markets 

through reducing the adverse effects of 

manipulation and disruptive practices. 

C. Paperwork Reduction Act 

The provisions of the proposed 

Commission Regulation [17 CFR Part 

180] would not result in new 

recordkeeping requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’). 

D. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 51 requires that agencies 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.52 The rules proposed by the 


srobinson on DSKHWCL6B1PROD with PROPOSALS
67662 Federal Register / Vol. 75, No. 212 / Wednesday, November 3, 2010 / Proposed Rules 

Commission will not have a significant 

economic impact on a substantial 

number of small entities. As explained 

above, legitimate market participants 

should already have procedures in place 

to prevent their employees and agents 

from manipulating the markets. 

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies, 

pursuant to 5 U.S.C. 605(b), that the 

proposed rules will not have a 

significant impact on a substantial 

number of small entities. 

E. Congressional Review Act 

The Congressional Review Act 

establishes certain procedures for major 

rules, defined as those rules that would 

result in an annual effect on the 

economy of $100 million or more, or 

have other substantial impacts. These 

proposed rules are not subject to any of 

those requirements because they would 

not have any of these substantial 

impacts; rather, they should result in 

significant economic benefits. 

List of Subjects in 17 CFR Part 180 

Commodity futures. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to add a 

new 17 CFR Part 180 as set forth below: 

PART 180—PROHIBITIONS AGAINST 

MANIPULATION 

Sec. 

180.1 Prohibition against manipulation. 

180.2 Other manipulation. 

Authority: 7 U.S.C. 6c(a), 9, 12(a)(5) and 

15, as amended by Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 

1376 (June 16, 2010); 5 U.S.C. 552 and 

552(b), unless otherwise noted. 

§ 180.1 Prohibition against manipulation. 

(a) It shall be unlawful for any person, 

directly or indirectly, in connection 

with any swap, or contract of sale of any 

commodity in interstate commerce, or 

contract for future delivery on or subject 

to the rules of any registered entity, to 

intentionally or recklessly: 

(1) Use or employ, or attempt to use 

or employ, any manipulative device, 

scheme, or artifice to defraud; 

(2) Make, or attempt to make, any 

untrue or misleading statement of a 

material fact or to omit to state a 

material fact necessary in order to make 

the statements made not untrue or 

misleading; 

(3) Engage, or attempt to engage, in 

any act, practice, or course of business, 

which operates or would operate as a 

fraud or deceit upon any person; or, 

(4) Deliver or cause to be delivered, or 

attempt to deliver or cause to be 

delivered, for transmission through the 

mails or interstate commerce, by any 

means of communication whatsoever, a 

false or misleading or inaccurate report 

concerning crop or market information 

or conditions that affect or tend to affect 

the price of any commodity in interstate 

commerce, knowing, or acting in 

reckless disregard of the fact that such 

report is false, misleading or inaccurate. 

Notwithstanding the foregoing, no 

violation of this section shall exist 

where the person mistakenly transmits, 

in good faith, false or misleading 

information to a price reporting service. 

(b) Nothing in this section shall be 

construed to require any person to 

disclose to another person nonpublic 

information that may be material to the 

market price, rate, or level of the 

commodity transaction, except as 

necessary to make any statement made 

to the other person in or in connection 

with the transaction not misleading in 

any material respect. 

(c) Nothing in this section shall affect, 

or be construed to affect, the 

applicability of Commodity Exchange 

Act section 9(a)(2). 

§ 180.2 Other manipulation. 

It shall be unlawful for any person, 

directly or indirectly, to manipulate or 

attempt to manipulate the price of any 

swap, or of any commodity in interstate 

commerce, or for future delivery on or 

subject to the rules of any registered 

entity. 

Issued in Washington, DC, on October 26, 

2010 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Statement of Chairman Gary Gensler 

Prohibition of Market Manipulation 

October 26, 2010 

I support the proposed rulemaking to 

enhance the Commission’s ability to 

protect against manipulation. Today’s 

rule builds upon important new 

authorities that Congress granted the 

Commission to protect market 

participants in the commodities, futures 

and swaps markets. Together with the 

authority granted by Congress to 

prohibit disruptive trading, this 

proposed rule gives the Commission the 

broad new ability to effectively combat 

fraud and manipulation. The proposed 

rulemaking promotes fair and efficient 

markets, for the first time allowing the 

Commission to protect against fraudbased manipulation. I thank Senator 

Cantwell for her leadership in bringing 

this important new authority to the 

Commission. 

[FR Doc. 2010–27541 Filed 11–2–10; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF LABOR 

Employment and Training 

Administration 

20 CFR Part 655 

RIN 1205–AB61 

Wage Methodology for the Temporary 

Non-Agricultural Employment H–2B 

Program; Extension of the Comment 

Period 

AGENCIES: Employment and Training 

Administration. 

ACTION: Proposed rule; extension of 

comment period. 

SUMMARY: On October 5, 2010, the 

Employment and Training 

Administration (ETA) issued a Notice of 

Proposed Rulemaking (NPRM) to amend 

its regulations governing the 

certification of the employment of 

nonimmigrant workers in temporary or 

seasonal non-agricultural employment 

and the enforcement of the obligations 

applicable to employers of such 

nonimmigrant workers. The proposed 

rule provided a comment period for the 

regulatory text through November 4, 

2010. The agency has received several 

requests to extend the comment period 

and has decided to extend the comment 

period for an additional 8 days, to 

November 12, 2010. 

DATES: The comment period for the 

notice of proposed rulemaking 

published October 5, 2010, 75 FR 61578 

is extended through November 12, 2010. 

Interested persons are invited to submit 

written comments on the proposed rule 

on or before November 12, 2010. 

ADDRESSES: You may submit comments, 

identified by Regulatory Information 

Number (RIN) 1205–AB61, by any one 

of the following methods: 

• Federal e-Rulemaking Portal: 

http://www.regulations.gov. Follow the 

Web site instructions for submitting 

comments. 

• Mail: Please submit all written 

comments (including disk and CD–ROM 

submissions) to Thomas Dowd, 

Administrator, Office of Policy 

Development and Research, 

Employment and Training 

Administration, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Room N–5641, Washington, DC 20210. 

• Hand Delivery/Courier: Please 

submit all comments to Thomas Dowd, 

Administrator, Office of Policy 

Development and Research, 

Employment and Training 

Administration, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Room N–5641, Washington, DC 20210. 


srobinson on DSKHWCL6B1PROD with PROPOSALS