```

[Federal Register: July 21, 2010 (Volume 75, Number 139)]
[Notices]               
[Page 42399-42411]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy10-40]                         

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COMMODITY FUTURES TRADING COMMISSION

 
Orders Finding That the PJM WH Real Time Peak Daily Contract, PJM 
WH Real Time Off-Peak Daily Contract and PJM WH Day Ahead LMP Peak 
Daily Contract Offered for Trading on the IntercontinentalExchange, 
Inc., Do Not Perform a Significant Price Discovery Function

AGENCY: Commodity Futures Trading Commission.

ACTION: Final orders.

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SUMMARY: On October 26, 2009, the Commodity Futures Trading Commission 
(``CFTC'' or ``Commission'') published for comment in the Federal 
Register \1\ a notice of its intent to undertake a determination 
whether the PJM \2\ WH \3\ Real Time Peak Daily

[[Page 42400]]

(``PDP'') contract, PJM WH Real Time Off-Peak Daily (``ODP'') contract 
and PJM WH Day Ahead LMP Peak Daily (``PDA'') contract,\4\ which are 
listed for trading on the IntercontinentalExchange, Inc. (``ICE''), an 
exempt commercial market (``ECM'') under sections 2(h)(3)-(5) of the 
Commodity Exchange Act (``CEA'' or the ``Act''), perform a significant 
price discovery function pursuant to section 2(h)(7) of the CEA. The 
Commission undertook this review based upon an initial evaluation of 
information and data provided by ICE as well as other available 
information. The Commission has reviewed the entire record in this 
matter, including all comments received, and has determined to issue 
orders finding that the PDP, ODP and PDA contracts do not perform a 
significant price discovery function. Authority for this action is 
found in section 2(h)(7) of the CEA and Commission rule 36.3(c) 
promulgated thereunder.
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    \1\ 74 FR 54966 (October 26, 2009).
    \2\ The acronym ``PJM'' stands for Pennsylvania New Jersey 
Maryland Interconnection, LLC (``PJM Interconnection''), and 
signifies the regional electricity transmission organization 
(``RTO'') that coordinates the generation and distribution of 
electricity in all or parts of 13 states and the District of 
Columbia.
    \3\ The acronym ``WH'' signifies the PJM Interconnection's 
Western Hub.
    \4\ The Federal Register notice also requested comment on the 
PJM WH Real Time Peak (``PJM'') contract and PJM WH Real Time Off-
Peak (``OPJ'') contract; these contracts will be addressed in a 
separate Federal Register release.

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DATES: Effective Date: July 9, 2010.

FOR FURTHER INFORMATION CONTACT: Gregory K. Price, Industry Economist, 
Division of Market Oversight, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5515. E-mail: gprice@cftc.gov; or Susan Nathan, 
Senior Special Counsel, Division of Market Oversight, same address. 
Telephone: (202) 418-5133. E-mail: snathan@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The CFTC Reauthorization Act of 2008 (``Reauthorization Act'') \5\ 
significantly broadened the CFTC's regulatory authority with respect to 
ECMs by creating, in section 2(h)(7) of the CEA, a new regulatory 
category--ECMs on which significant price discovery contracts 
(``SPDCs'') are traded--and treating ECMs in that category as 
registered entities under the CEA.\6\ The legislation authorizes the 
CFTC to designate an agreement, contract or transaction as a SPDC if 
the Commission determines, under criteria established in section 
2(h)(7), that it performs a significant price discovery function. When 
the Commission makes such a determination, the ECM on which the SPDC is 
traded must assume, with respect to that contract, all the 
responsibilities and obligations of a registered entity under the Act 
and Commission regulations, and must comply with nine core principles 
established by new section 2(h)(7)(C).
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    \5\ Incorporated as Title XIII of the Food, Conservation and 
Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18, 
2008).
    \6\ 7 U.S.C. 1a(29).
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    On March 16, 2009, the CFTC promulgated final rules implementing 
the provisions of the Reauthorization Act.\7\ As relevant here, rule 
36.3 imposes increased information reporting requirements on ECMs to 
assist the Commission in making prompt assessments whether particular 
ECM contracts may be SPDCs. In addition to filing quarterly reports of 
its contracts, an ECM must notify the Commission promptly concerning 
any contract traded in reliance on the exemption in section 2(h)(3) of 
the CEA that averaged five trades per day or more over the most recent 
calendar quarter, and for which the exchange sells its price 
information regarding the contract to market participants or industry 
publications, or whose daily closing or settlement prices on 95 percent 
or more of the days in the most recent quarter were within 2.5 percent 
of the contemporaneously determined closing, settlement or other daily 
price of another contract.
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    \7\ 74 FR 12178 (Mar. 23, 2009); these rules became effective on 
April 22, 2009.
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    Commission rule 36.3(c)(3) established the procedures by which the 
Commission makes and announces its determination whether a particular 
ECM contract serves a significant price discovery function. Under those 
procedures, the Commission will publish notice in the Federal Register 
that it intends to undertake an evaluation whether the specified 
agreement, contract or transaction performs a significant price 
discovery function and to receive written views, data and arguments 
relevant to its determination from the ECM and other interested 
persons. Upon the close of the comment period, the Commission will 
consider, among other things, all relevant information regarding the 
subject contract and issue an order announcing and explaining its 
determination whether or not the contract is a SPDC. The issuance of an 
affirmative order signals the effectiveness of the Commission's 
regulatory authorities over an ECM with respect to a SPDC; at that time 
such an ECM becomes subject to all provisions of the CEA applicable to 
registered entities.\8\ The issuance of such an order also triggers the 
obligations, requirements and timetables prescribed in Commission rule 
36.3(c)(4).\9\
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    \8\ Public Law 110-246 at 13203; Joint Explanatory Statement of 
the Committee of Conference, H.R. Rep. No. 110-627, 110 Cong., 2d 
Sess. 978, 986 (Conference Committee Report). See also 73 FR 75888, 
75894 (Dec. 12, 2008).
    \9\ For an initial SPDC, ECMs have a grace period of 90 calendar 
days from the issuance of a SPDC determination order to submit a 
written demonstration of compliance with the applicable core 
principles. For subsequent SPDCs, ECMs have a grace period of 30 
calendar days to demonstrate core principle compliance.
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II. Notice of Intent To Undertake SPDC Determination

    On October 26, 2009, the Commission published in the Federal 
Register notice of its intent to undertake a determination whether the 
PDP, ODP and PDA contracts\10\ perform a significant price discovery 
function and requested comment from interested parties.\11\ Comments 
were received from PJM Interconnection, Federal Energy Regulatory 
Commission (``FERC''), Electric Power Supply Association (``EPSA''), 
Financial Institutions Energy Group (``FIEG''), Edison Electric 
Institute (``EEI''), ICE and Public Utility Commission of Texas 
(``PUCT'').\12\ The comment letters from PJM

[[Page 42401]]

Interconnection,\13\ FERC \14\ and PUCT did not directly address the 
issue of whether or not the subject contracts are SPDCs. The remaining 
comment letters raised substantive issues with respect to the 
applicability of section 2(h)(7) to the subject contracts and generally 
expressed the opinion that the contracts are not SPDCs because they do 
not meet the material price reference or material liquidity criteria 
for SPDC determination. These comments are more extensively discussed 
below, as applicable.
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    \10\ As noted above, the Federal Register notice also requested 
comment on the PJM WH Real Time Peak (``PJM'') contract and PJM WH 
Real Time Off-Peak (``OPJ'') contract. The PJM and OPJ contracts 
will be addressed in a separate Federal Register release.
    \11\ The Commission's Part 36 rules establish, among other 
things, procedures by which the Commission makes and announces its 
determination whether a specific ECM contract serves a significant 
price discovery function. Under those procedures, the Commission 
publishes a notice in the Federal Register that it intends to 
undertake a determination whether a specified agreement, contract or 
transaction performs a significant price discovery function and to 
receive written data, views and arguments relevant to its 
determination from the ECM and other interested persons.
    \12\ PJM Interconnection, as noted above, is the RTO that 
coordinates the generation and distribution of electricity in all or 
parts of 13 states and the District of Columbia. FERC is an 
independent federal regulatory agency that, among other things, 
regulates the interstate transmission of natural gas, oil and 
electricity. EPSA describes itself as the ``national trade 
association representing competitive power suppliers, including 
generators and marketers.'' FIEG describes itself as an association 
of investment and commercial banks who are active participants in 
various sectors of the natural gas markets, ``including acting as 
marketers, lenders, underwriters of debt and equity securities, and 
proprietary investors.'' EEI is the ``association of shareholder-
owned electric companies, international affiliates and industry 
associates worldwide.'' ICE is an ECM, as noted above. PUCT is the 
independent organization that oversees the Electric Reliability 
Council of Texas (``ERCOT'') to ``ensure nondiscriminatory access to 
the transmission and distribution systems, to ensure the reliability 
and adequacy of the regional electrical network, and to perform 
other essential market functions.'' The comment letters are 
available on the Commission's Web site: http://www.cftc.gov/lawandregulation/federalregister/federalregistercomments/2009/09-032.html.
    \13\ PJM Interconnection stated that it ``takes no position as 
to whether the ICE [contracts] * * * perform significant price 
discovery functions.''
    \14\ FERC expressed the opinion that a determination by the 
Commission that any of the subject contracts performs a significant 
price discovery function ``would not appear to conflict with FERC's 
exclusive jurisdiction under the Federal Power Act (FPA) over the 
transmission or sale for resale of electric energy in interstate 
commerce or with its other regulatory responsibilities under the 
FPA'' and further that ``FERC staff will monitor proposed SPDC 
determinations and advise the CFTC of any potential conflicts with 
FERC's exclusive jurisdiction over RTOs, ISOs [(independent system 
operators)] or other jurisdictional entities.''
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III. Section 2(h)(7) of the CEA

    The Commission is directed by section 2(h)(7) of the CEA to 
consider the following criteria in determining a contract's significant 
price discovery function:
     Price Linkage--the extent to which the agreement, contract 
or transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts 
listed for trading on or subject to the rules of a designated contract 
market (``DCM'') or derivatives transaction execution facility 
(``DTEF''), or a SPDC traded on an electronic trading facility, to 
value a position, transfer or convert a position, cash or financially 
settle a position, or close out a position.
     Arbitrage--the extent to which the price for the 
agreement, contract or transaction is sufficiently related to the price 
of a contract or contracts listed for trading on or subject to the 
rules of a DCM or DTEF, or a SPDC traded on or subject to the rules of 
an electronic trading facility, so as to permit market participants to 
effectively arbitrage between the markets by simultaneously maintaining 
positions or executing trades in the contracts on a frequent and 
recurring basis.
     Material price reference--the extent to which, on a 
frequent and recurring basis, bids, offers or transactions in a 
commodity are directly based on, or are determined by referencing or 
consulting, the prices generated by agreements, contracts or 
transactions being traded or executed on the electronic trading 
facility.
     Material liquidity--the extent to which the volume of 
agreements, contracts or transactions in a commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a DCM, DTEF or electronic trading facility 
operating in reliance on the exemption in section 2(h)(3).
    Not all criteria must be present to support a determination that a 
particular contract performs a significant price discovery function, 
and one or more criteria may be inapplicable to a particular 
contract.\15\ Moreover, the statutory language neither prioritizes the 
criteria nor specifies the degree to which a SPDC must conform to the 
various criteria. In Guidance issued in connection with the Part 36 
rules governing ECMs with SPDCs, the Commission observed that these 
criteria do not lend themselves to a mechanical checklist or formulaic 
analysis. Accordingly, the Commission has indicated that in making its 
determinations it will consider the circumstances under which the 
presence of a particular criterion, or combination of criteria, would 
be sufficient to support a SPDC determination.\16\ For example, for 
contracts that are linked to other contracts or that may be arbitraged 
with other contracts, the Commission will consider whether the price of 
the potential SPDC moves in such harmony with the other contract that 
the two markets essentially become interchangeable. This co-movement of 
prices would be an indication that activity in the contract had reached 
a level sufficient for the contract to perform a significant price 
discovery function. In evaluating a contract's price discovery role as 
a price reference, the Commission the extent to which, on a frequent 
and recurring basis, bids, offers or transactions are directly based 
on, or are determined by referencing, the prices established for the 
contract.
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    \15\ In its October 26, 2009, Federal Register release, the 
Commission identified material price reference and material 
liquidity as the possible criteria for SPDC determination of the 
PDP, ODP and PDA contracts. Arbitrage and price linkage were not 
identified as possible criteria. As a result, arbitrage and price 
linkage will not be discussed further in this document and the 
associated Orders.
    \16\ 17 CFR Part 36, Appendix A.
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IV. Findings and Conclusions

    The Commission's findings and conclusions with respect to the PDP, 
ODP and PDA contracts are discussed separately below.

a. The PJM WH Real Time Peak Daily (PDP) Contract and the SPDC Indicia

    The PDP contract is cash settled based on the arithmetic average of 
peak-hour, real-time locational marginal prices (``LMPs'') \17\ 
published by PJM Interconnection for its Western Hub for all peak hours 
during the specified day of generation. The hourly LMPs are derived 
from power trades that result in physical delivery. The size of the PDP 
contract is 800 megawatt hours (``MWh''), and the PDP contract is 
listed for 38 consecutive days.
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    \17\ An LMP represents the additional cost associated with 
producing an incremental amount of electricity. LMPs account for 
generation costs, congestion along the transmission lines, and 
electricity loss.
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    In general, electricity is bought and sold in an auction setting on 
an hourly basis at various points along the electrical grid. An LMP 
associated with a specific hour is calculated as the volume-weighted 
average price of all of the transactions where electricity is to be 
supplied and consumed during that hour.
    Electricity is traded in a day-ahead market as well as a real-time 
market. The day-ahead market establishes prices for electricity that is 
to be delivered during the specified hour on the following day. Day-
ahead prices are determined based on generation and energy transaction 
quotes offered in advance. Because the offers and bids are dependent on 
estimates of supply and demand, electricity needs usually are not 
perfectly satisfied in the day-ahead market. In this regard, on the day 
the electricity is transmitted and used, auction participants typically 
realize that they bought or sold either too much power or too little 
power. A real-time auction is operated to alleviate this problem by 
serving as a balancing mechanism. Specifically, electricity traders use 
the real-time market to sell excess electricity and buy additional 
power to meet demand.
    PJM Interconnection is an RTO that coordinates the movement of 
wholesale electricity in all or parts of Delaware, Illinois, Indiana, 
Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, 
Pennsylvania, Tennessee, Virginia, West Virginia and the District of 
Columbia. PJM Interconnection's transmission network is the largest 
centrally-dispatched grid in North America. PJM Interconnection 
dispatches about 163,500 MW of generating capacity over 56,350 miles of 
transmission lines and serves more than 51 million customers. The RTO's

[[Page 42402]]

members, totaling more than 500, include power generators, transmission 
owners, electricity distributors, power marketers and large consumers.
    PJM Interconnection is responsible for operating a competitive 
wholesale electricity market as well as maintaining the reliability of 
the grid. The RTO acts as a neutral, independent party, and its 
activities are regulated by FERC. The company coordinates the 
continuous buying, selling and delivery of wholesale electricity 
through robust, open and competitive spot markets. In operating the 
markets, PJM Interconnection balances the needs of suppliers, wholesale 
customers and other market participants, and it continuously monitors 
market behavior.
    Electricity is priced at individual points along the transmission 
network called nodes. An electric grid has many interconnections or 
buses. RTOs group certain buses together to form hubs, which do not 
necessarily follow along state lines or geographic boundaries. Power 
also is priced at the hub level and serves as a basis for trading 
electricity. PJM Interconnnection has 11 hubs, including AEP GEN, AEP-
Dayton, Chicago GEN, Chicago, Dominion, Eastern, Northern Illinois, New 
Jersey, Ohio, West INT and Western Hub.\18\ The Western Hub is a basket 
of 109 buses that stretch all the way from Erie, PA, to Washington, 
DC.\19\
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    \18\ http://www.ferc.gov/market-oversight/mkt-electric/pjm.asp.
    \19\ http://www.ferc.gov/market-oversight/mkt-electric/pjm/2010/05-2010-elec-pjm-archive.pdf.
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1. Material Price Reference Criterion
    The Commission's October 26, 2009, Federal Register notice 
identified the PDP contract as a potential SPDC based on the material 
price reference and material liquidity criteria. The Commission 
considered the fact that ICE sells its price data to market 
participants in a number of different packages which vary in terms of 
the hubs covered, time periods, and whether the data are daily only or 
historical. For example, ICE offers the ``East Power of Day'' package 
with access to all price data or just current prices plus a selected 
number of months (i.e., 12, 24, 36 or 48 months) of historical data. 
This package includes price data for the PDP contract.
    The Commission also noted that its October 2007 Report on the 
Oversight of Trading on Regulated Futures Exchanges and Exempt 
Commercial Markets (``ECM Study'') found that in general, market 
participants view ICE as a price discovery market for certain 
electricity contracts. The study did not specify which markets 
performed this function; nevertheless, the Commission determined that 
the PDP contract, while not mentioned by name in the ECM Study, 
warranted further review.
    The Commission explains in its Guidance to the statutory criteria 
that in evaluating a contract under the material price reference 
criterion, it will rely on one of two sources of evidence--direct and 
indirect--to determine that the price of a contract was being used as a 
material price reference and therefore, serving a significant price 
discovery function.\20\ With respect to direct evidence, the Commission 
will consider the extent to which, on a frequent and recurring basis, 
cash market bids, offers or transactions are directly based on, or 
quoted at a differential to, the prices generated on the ECM in 
question. Direct evidence may be established when cash market 
participants are quoting bid or offer prices or entering into 
transactions at prices that are set either explicitly or implicitly at 
a differential to prices established for the contract in question. Cash 
market prices are set explicitly at a differential to the section 
2(h)(3) contract when, for instance, they are quoted in dollars and 
cents above or below the reference contract's price. Cash market prices 
are set implicitly at a differential to a section 2(h)(3) contract 
when, for instance, they are arrived at after adding to, or subtracting 
from the section 2(h)(3) contract, but then quoted or reported at a 
flat price. With respect to indirect evidence, the Commission will 
consider the extent to which the price of the contract in question is 
being routinely disseminated in widely distributed industry 
publications--or offered by the ECM itself for some form of 
remuneration--and consulted on a frequent and recurring basis by 
industry participants in pricing cash market transactions.
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    \20\ 17 CFR Part 36, Appendix A.
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    The PJM Western hub is a major pricing center for electricity in 
the eastern portion of the United States. Traders, including producers, 
keep abreast of the electricity prices at PJM Interconnection's Western 
Hub when conducting cash deals. Power prices in other neighboring 
markets, such as New York ISO's Zone A (Western New York), Zone G 
(Hudson Valley region) and Zone J (New York City) as well as Midwest 
ISO's Cinergy hub are typically based implicitly relative to the prices 
reported for PJM Interconnection's Western hub. However, ICE's PJM WH 
Real Time Peak (``PJM'') contract, which is a monthly contract, is used 
more widely as a source of pricing information for electricity than the 
daily, peak-hour contract (i.e., the PDP contract). Specifically, the 
PJM contract prices power at the Western Hub based on the simple 
average of peak-hour prices over the contract month, as reported by PJM 
Interconnection. Market participants use the PJM contract to lock-in 
electricity prices far into the future. (The PJM contract is listed for 
110 months into the future.) In contrast, the PDP contract is listed 
for a much shorter length of time (about five weeks); with such a 
limited timeframe, the forward pricing capability of the PDP contract 
is much more constrained than that of the PJM contract. Traders use 
monthly power contracts like the PJM contract to price electricity 
commitments in the future, where such commitments are based on long 
range forecasts of power supply and demand. As generation and usage 
nears, market participants have a better understanding of actual power 
supply and needs. As a result, traders can modify previously-
established hedges with the daily power contracts, like the PDP 
contract.
    Accordingly, although the Western Hub is a major trading center for 
electricity and, as noted, ICE sells price information for the PDP 
contract, the Commission has explained in its Guidance that a contract 
meeting the material price reference criterion would routinely be 
consulted by industry participants in pricing cash market transactions. 
The PDP contract is not consulted in this manner and does not satisfy 
the material price reference criterion. Thus, the PDP contract does not 
satisfy the direct price reference test for existence of material price 
reference. Furthermore, the Commission notes that publication of the 
PDP contract's prices is not indirect evidence of material price 
reference. The PDP contract's prices are published with those of 
numerous other contracts, including ICE's monthly electricity contracts 
(such as the PJM contract), which are of more interest to market 
participants. In these circumstances, the Commission has concluded that 
traders likely do not specifically purchase ICE data packages for the 
PDP contract's prices and do not consult such prices on a frequent and 
recurring basis in pricing cash market transactions.
i. Federal Register Comments
    EPSA, FIEG, EEI and ICE stated that no other contract directly 
references or settles to the PDP contract's price. Moreover, the 
commenters argued that the underlying cash price series against which 
the PDP contract is settled \21\ is

[[Page 42403]]

the authentic reference price and not the ICE contract itself. 
Commission staff believes that this interpretation of price reference 
is too narrow and believes that a cash-settled derivatives contract 
could meet the price reference criterion if market participants 
``consult [the derivatives contract] on a frequent and recurring 
basis'' when pricing forward, fixed-price commitments or other cash-
settled derivatives that seek to ``lock-in'' a fixed price for some 
future point in time to hedge against adverse price movements. As noted 
above, while Western Hub is a major power market, traders do not 
consider the daily average peak-hour Western Hub price to be as 
important as the peak electricity price associated with the monthly 
contract.
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    \21\ In this case, the average of the real-time peak-hour 
Western hub electricity prices over the day of generation, which are 
derived from cash market transactions.
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    In addition, EPSA stated that the publication of price data for the 
PDP contract price is a weak justification for material price reference 
because market participants generally do not purchase ICE data sets for 
one contract's prices, such as those for the PDP contract. Instead, 
traders are interested in the settlement prices, so the fact that ICE 
sells the PDP prices as part of a broad package is not conclusive 
evidence that market participants are buying the ICE data sets because 
they find the PDP prices have substantial value. As noted above, the 
Commission indicated that publication of the PDP contract's prices is 
not indirect evidence of routine dissemination. The PDP contract's 
prices are published with those of numerous other contracts, which are 
of more interest to market participants. The Commission has concluded 
that traders likely do not specifically purchase the ICE data packages 
for the PDP contract's prices and do not consult such prices on a 
frequent and recurring basis in pricing cash market transactions.
    Lastly, ICE and EEI criticized the ECM Study since it did not 
specifically identify the PDP contract as a contract that is referred 
to by market participants on a frequent and recurring basis. In 
response, the Commission notes that it cited the ECM Study's general 
finding that some ICE electricity contracts appear to be regarded as 
price discovery markets merely as indication that an investigation of 
certain ICE contracts may be warranted. The ECM Study was not intended 
to serve as the sole basis for determining whether or not a particular 
contract meets the material price reference criterion.
ii. Conclusion Regarding Material Price Reference
    Based on the above, the Commission finds that the ICE PDP contract 
does not meet the material price reference criterion because cash 
market transactions are not priced either explicitly or implicitly on a 
frequent and recurring basis at a differential to the PDP contract's 
price (direct evidence). Moreover, while the PDP contract's price data 
is sold to market participants, those individuals likely do not 
purchase the ICE data packages specifically for the PDP contract's 
prices and do not consult such prices on a frequent and recurring basis 
in pricing cash market transactions (indirect evidence).
2. Material Liquidity Criterion
    To assess whether a contract meets the material liquidity 
criterion, the Commission first examines trading activity as a general 
measurement of the contract's size and potential importance. If the 
Commission finds that the contract in question meets a threshold of 
trading activity that would render it of potential importance, the 
Commission will then perform a statistical analysis to measure the 
effect that changes to the subject contract's prices potentially may 
have on prices for other contracts listed on an ECM or a DCM.
    The total number of transactions executed on ICE's electronic 
platform in the PDP contract was 48,072 in the second quarter of 2009, 
resulting in a daily average of 751.1 trades. During the same period, 
the PDP contract had a total trading volume of 68,586 contracts and an 
average daily trading volume of 1,071.7 contracts. Moreover, open 
interest as of June 30, 2009, was 1,856 contracts, which included 
trades executed on ICE's electronic trading platform, as well as trades 
executed off of ICE's electronic trading platform and then brought to 
ICE for clearing. In this regard, ICE does not differentiate between 
open interest created by a transaction executed on its trading platform 
and that created by a transaction executed off its trading 
platform.\22\
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    \22\ 74 FR 54966 (October 26, 2009).
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    In a subsequent filing dated March 24, 2010, ICE reported that 
total trading volume in the fourth quarter of 2009 was 64,233 contracts 
(or 988.2 contracts on a daily basis). In terms of number of 
transactions, 45,167 trades occurred in the fourth quarter of 2009 
(694.9 trades per day). As of December 31, 2009, open interest in the 
PDP contract was 710 contracts, which included trades executed on ICE's 
electronic trading platform, as well as trades executed off of ICE's 
electronic trading platform and then brought to ICE for clearing.
    The number of trades per day was substantial between the second and 
fourth quarters of 2009. However, trading activity in the PDP contract, 
as characterized by total quarterly volume, indicates that the PDP 
contract experiences trading activity that is similar to that of 
thinly-traded futures markets.\23\ Thus, the PDP contract does not meet 
a threshold of trading activity that would render it of potential 
importance and no additional statistical analysis is warranted.\24\
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    \23\ Staff has advised the Commission that in its experience, a 
thinly-traded contract is, generally, one that has a quarterly 
trading volume of 100,000 contracts or less. In this regard, in the 
third quarter of 2009, physical commodity futures contracts with 
trading volume of 100,000 contracts or fewer constituted less than 
one percent of total trading volume of all physical commodity 
futures contracts.
    \24\ In establishing guidance to illustrate how it will evaluate 
the various criteria, or combinations of criteria, when determining 
whether a contract is a SPDC, the Commission made clear that 
``material liquidity itself would not be sufficient to make a 
determination that a contract is a [SPDC], * * * but combined with 
other factors it can serve as a guidepost indicating which contracts 
are functioning as [SPDCs].'' 17 CFR 36, Appendix A. For the reasons 
discussed above, the Commission has found that the PDP contract does 
not meet the material price reference criterion. In light of this 
finding and the Commission's Guidance cited above, there is no need 
to evaluate further the material liquidity criteria since the 
Commission believes it is not useful as the sole basis for a SPDC 
determination.
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i. Federal Register Comments
    ICE stated that the PDP contract lacks a sufficient number of 
trades to meet the material liquidity criterion. Along with EPSA and 
EEI, ICE argued that the PDP contract cannot have a material effect on 
other contracts, such as those listed for trading by the New York 
Mercantile Exchange (``NYMEX''), a DCM, because price linkage and the 
potential for arbitrage do not exist. Moreover, the DCM contracts do 
not cash settle to the PDP contract's price. Instead, the DCM contracts 
and the PDP contract are both cash settled based on physical 
transactions, which neither the ECM nor the DCM contracts can 
influence.
    ICE noted that the Commission's Guidance had posited concepts of 
liquidity that generally assumed a fairly constant stream of prices 
throughout the trading day and noted that the PDP contract did not meet 
this standard of liquidity. The Commission observes that a continuous 
stream of prices would indeed be an indication of liquidity for certain 
markets but the Guidance also notes that ``quantifying the levels of 
immediacy and price concession that

[[Page 42404]]

would define material liquidity may differ from one market or commodity 
to another.'' \25\
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    \25\ Guidance, supra.
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    ICE opined that the Commission ``seems to have adopted a five trade 
per day test for material liquidity.'' To the contrary, the Commission 
adopted a five trades-per-day threshold as a reporting requirement to 
enable it to ``independently be aware of ECM contracts that may develop 
into SPDCs'' \26\ rather than solely relying upon an ECM to identify 
potential SPDCs to the Commission. Thus, any contract that meets this 
threshold may be subject to scrutiny as a potential SPDC; however, a 
contract will not be found to be a SPDC merely because it met the 
reporting threshold.
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    \26\ 73 FR 75892 (December 12, 2008).
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    ICE proposed that the statistics provided by ICE were 
misinterpreted and misapplied by the Commission. In particular, ICE 
stated that the volume figures used in the Commission's analysis (cited 
above) ``include trades made in all months'' as well as in strips of 
contract months. ICE suggested that a more appropriate method of 
determining liquidity is to examine the activity in a single traded 
month of a given contract.'' \27\ It is the Commission's opinion that 
liquidity, as it pertains to the PDP contract, is typically a function 
of trading activity in particular lead days and, given sufficient 
liquidity in such days, the ICE PDP contract itself would be considered 
liquid. In any event, in light of the fact that the Commission has 
found that the PDP contract does not meet the material price reference 
criterion, according to the Commission's Guidance, it would be 
unnecessary to evaluate whether the PDP contract meets the material 
liquidity criterion since it cannot be used alone for SPDC 
determination.
---------------------------------------------------------------------------

    \27\ In addition, ICE stated that the trades-per-day statistics 
that it provided to the Commission in its quarterly filing and which 
were cited in the Commission's October 26, 2009, Federal Register 
notice includes 2(h)(1) transactions, which were not completed on 
the electronic trading platform and should not be considered in the 
SPDC determination process. The Commission staff asked ICE to review 
the data it sent in its quarterly filings; ICE confirmed that the 
volume data it provided and which the Commission cited includes only 
transaction data executed on ICE's electronic trading platform. As 
noted above, supplemental data supplied by ICE confirmed that block 
trades are in addition to the trades that were conducted on the 
electronic platform; block trades comprise about 10 percent of all 
transactions in the PDP contract (as of the fourth quarter of 2009). 
Commission acknowledges that the open interest information it 
provided in its October 26, 2009, Federal Register notice includes 
transactions made off the ICE platform. However, once open interest 
is created, there is no way for ICE to differentiate between ``on-
exchange'' versus ``off-exchange'' created positions, and all such 
positions are fungible with one another and may be offset in any way 
agreeable to the position holder regardless of how the position was 
initially created.
---------------------------------------------------------------------------

ii. Conclusion Regarding Material Liquidity
    For the reasons discussed above, the Commission finds that the PDP 
contract does not meet the material liquidity criterion.
3. Overall Conclusion Regarding the PDP Contract
    After considering the entire record in this matter, including the 
comments received, the Commission has determined that the ICE PDP 
contract does not perform a significant price discovery function under 
the criteria established in section 2(h)(7) of the CEA. Specifically, 
the Commission has determined that the PDP contract does not meet the 
material price reference or material liquidity criteria at this time. 
Accordingly, the Commission is issuing the attached Order declaring 
that the PDP contract is not a SPDC.
    Issuance of this Order indicates that the Commission does not at 
this time regard ICE as a registered entity in connection with its PDP 
contract.\28\ Accordingly, with respect to its PDP contract, ICE is not 
required to comply with the obligations, requirements and timetables 
prescribed in Commission rule 36.3(c)(4) for ECMs with SPDCs. However, 
ICE must continue to comply with the applicable reporting requirements 
for ECMs.
---------------------------------------------------------------------------

    \28\ See 73 FR 75888, 75893 (Dec. 12, 2008).
---------------------------------------------------------------------------

b. The PJM WH Real Time Off-Peak Daily (ODP) Contract and the SPDC 
Indicia

    The ODP contract is cash settled based on the arithmetic average of 
off-peak hour, real-time LMPs published by PJM Interconnection for its 
Western Hub for all peak hours during the specified day of generation. 
The hourly LMPs are derived from power trades that result in physical 
delivery. The size of the ODP contract is 50 MWh, and the ODP contract 
is listed for 38 consecutive days.
    In general, electricity is bought and sold in an auction setting on 
an hourly basis at various point along the electrical grid. An LMP 
associated with a specific hour is calculated as the volume-weighted 
average price of all of the transactions where electricity is to be 
supplied and consumed during that hour.
    Electricity is traded in a day-ahead market as well as a real-time 
market. The day-ahead market establishes prices for electricity that is 
to be delivered during the specified hour on the following day. Day-
ahead prices are determined based on generation and energy transaction 
quotes offered in advance. Because the offers and bids are dependent on 
estimates of supply and demand, electricity needs usually are not 
perfectly satisfied in the day-ahead market. In this regard, on the day 
the electricity is transmitted and used, auction participants typically 
realize that they bought or sold either too much power or too little 
power. A real-time auction is operated to alleviate this problem by 
serving as a balancing mechanism. Specifically, electricity traders use 
the real-time market to sell excess electricity and buy additional 
power to meet demand.
    PJM Interconnection is an RTO that coordinates the movement of 
wholesale electricity in all or parts of Delaware, Illinois, Indiana, 
Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, 
Pennsylvania, Tennessee, Virginia, West Virginia and the District of 
Columbia. PJM Interconnection's transmission network is the largest 
centrally-dispatched grid in North America. PJM Interconnection 
dispatches about 163,500 MW of generating capacity over 56,350 miles of 
transmission lines and serves more than 51 million customers. The RTO's 
members, totaling more than 500, include power generators, transmission 
owners, electricity distributors, power marketers and large consumers.
    PJM Interconnection is responsible for operating a competitive 
wholesale electricity market as well as maintaining the reliability of 
the grid. The RTO acts as a neutral, independent party, and its 
activities are regulated by FERC. The company coordinates the 
continuous buying, selling and delivery of wholesale electricity 
through robust, open and competitive spot markets. In operating the 
markets, PJM Interconnection balances the needs of suppliers, wholesale 
customers and other market participants, and it continuously monitors 
market behavior.
    Electricity is priced at individual points along the transmission 
network called nodes. An electric grid has many interconnections or 
buses. RTOs group certain buses together to form hubs, which do not 
necessarily follow along state lines or geographic boundaries. Power 
also is priced at the hub level and serves as a basis for trading 
electricity. PJM Interconnnection has 11 hubs, including AEP GEN, AEP-
Dayton, Chicago GEN, Chicago, Dominion, Eastern, Northern Illinois, New 
Jersey,

[[Page 42405]]

Ohio, West INT and Western Hub.\29\ The Western Hub is a basket of 109 
buses that stretch all the way from Erie, PA, to Washington, DC.\30\
---------------------------------------------------------------------------

    \29\ http://www.ferc.gov/market-oversight/mkt-electric/pjm.asp.
    \30\ http://www.ferc.gov/market-oversight/mkt-electric/pjm/2010/05-2010-elec-pjm-archive.pdf.
---------------------------------------------------------------------------

1. Material Price Reference Criterion
    The Commission's October 26, 2009, Federal Register notice 
identified the ODP contract as a potential SPDC based on the material 
price reference and material liquidity criteria. The Commission 
considered the fact that ICE sells its price data to market 
participants in a number of different packages which vary in terms of 
the hubs covered, time periods, and whether the data are daily only or 
historical. For example, ICE offers the ``East Power of Day'' package 
with access to all price data or just current prices plus a selected 
number of months (i.e., 12, 24, 36 or 48 months) of historical data. 
This package includes price data for the ODP contract.
    The Commission also noted that its October 2007 ECM Study found 
that in general, market participants view ICE as a price discovery 
market for certain electricity contracts. The study did not specify 
which markets performed this function; nevertheless, the Commission 
determined that the ODP contract, while not mentioned by name in the 
ECM Study, warranted further review.
    The Commission explains in its Guidance to the statutory criteria 
that in evaluating a contract under the material price reference 
criterion, it will rely on one of two sources of evidence--direct and 
indirect--to determine that the price of a contract was being used as a 
material price reference and therefore, serving a significant price 
discovery function.\31\ With respect to direct evidence, the Commission 
will consider the extent to which, on a frequent and recurring basis, 
cash market bids, offers or transactions are directly based on, or 
quoted at a differential to, the prices generated on the ECM in 
question. Direct evidence may be established when cash market 
participants are quoting bid or offer prices or entering into 
transactions at prices that are set either explicitly or implicitly at 
a differential to prices established for the contract in question. Cash 
market prices are set explicitly at a differential to the section 
2(h)(3) contract when, for instance, they are quoted in dollars and 
cents above or below the reference contract's price. Cash market prices 
are set implicitly at a differential to a section 2(h)(3) contract 
when, for instance, they are arrived at after adding to, or subtracting 
from the section 2(h)(3) contract, but then quoted or reported at a 
flat price. With respect to indirect evidence, the Commission will 
consider the extent to which the price of the contract in question is 
being routinely disseminated in widely distributed industry 
publications--or offered by the ECM itself for some form of 
remuneration--and consulted on a frequent and recurring basis by 
industry participants in pricing cash market transactions.
---------------------------------------------------------------------------

    \31\ 17 CFR Part 36, Appendix A.
---------------------------------------------------------------------------

    The PJM Western hub is a major pricing center for electricity in 
the eastern portion of the United States. Traders, including producers, 
keep abreast of the electricity prices at PJM Interconnection's Western 
Hub when conducting cash deals. Power prices in other neighboring 
markets, such as New York ISO's Zone A (Western New York), Zone G 
(Hudson Valley region) and Zone J (New York City) as well as Midwest 
ISO's Cinergy hub are typically based implicitly relative to the prices 
reported for PJM Interconnection's Western hub. However, ICE's PJM WH 
Real Time Off-Peak (``OPJ'') contract, which is a monthly contract, is 
used more widely as a source of pricing information for electricity 
than the daily, off-peak hour contract (i.e., the ODP contract). 
Specifically, the OPJ contract prices power at the Western Hub based on 
the simple average of off-peak hour prices over the contract month, as 
reported by PJM Interconnection. Market participants use the OPJ 
contract to lock-in electricity prices far into the future. (The OPJ 
contract is listed up to 86 months into the future.) In contrast, the 
ODP contract is listed for a much shorter length of time (about five 
weeks); with such a limited timeframe, the forward pricing capability 
of the ODP contract is much more constrained than that of the OPJ 
contract. Traders use monthly power contracts like the OPJ contract to 
price electricity commitments in the future, where such commitments are 
based on long range forecasts of power supply and demand. As generation 
and usage nears, market participants have a better understanding of 
actual power supply and needs. As a result, traders can modify 
previously-established hedges with the daily power contracts, like the 
ODP contract.
    Accordingly, although the Western Hub is a major trading center for 
electricity and, as noted, ICE sells price information for the ODP 
contract, the Commission has explained in its Guidance that a contract 
meeting the material price reference criterion would routinely be 
consulted by industry participants in pricing cash market transactions. 
The ODP contract is not consulted in this manner and does not satisfy 
the material price reference criterion. Thus, the ODP contract does not 
satisfy the direct price reference test for existence of material price 
reference. Furthermore, the Commission notes that publication of the 
ODP contract's prices is not indirect evidence of material price 
reference. The ODP contract's prices are published with those of 
numerous other contracts, including ICE's monthly electricity contracts 
(such as the OPJ contract), which are of more interest to market 
participants. In these circumstances, the Commission has concluded that 
traders likely do not specifically purchase ICE data packages for the 
ODP contract's prices and do not consult such prices on a frequent and 
recurring basis in pricing cash market transactions.
i.  Federal Register Comments
    EPSA, FIEG, EEI and ICE stated that no other contract directly 
references or settles to the ODP contract's price. Moreover, the 
commenters argued that the underlying cash price series against which 
the ODP contract is settled \32\ is the authentic reference price and 
not the ICE contract itself. Commission staff believes that this 
interpretation of price reference is too narrow and believes that a 
cash-settled derivatives contract could meet the price reference 
criterion if market participants ``consult [the derivatives contract] 
on a frequent and recurring basis'' when pricing forward, fixed-price 
commitments or other cash-settled derivatives that seek to ``lock-in'' 
a fixed price for some future point in time to hedge against adverse 
price movements. As noted above, while Western Hub is a major power 
market, traders do not consider the daily average off-peak hour Western 
Hub price to be as important as the peak electricity price associated 
with the monthly contract.
---------------------------------------------------------------------------

    \32\ In this case, the average of the real-time peak-hour 
Western hub electricity prices over the day of generation, which are 
derived from cash market transactions.
---------------------------------------------------------------------------

    In addition, EPSA stated that the publication of price data for the 
ODP contract price is a weak justification for material price reference 
because market participants generally do not purchase ICE data sets for 
one contract's prices, such as those for the ODP contract. Instead, 
traders are interested in the settlement prices, so the fact that ICE 
sells the ODP prices as part of a broad package is not conclusive 
evidence that market participants are buying the ICE data sets because 
they find the ODP prices have substantial value. As noted

[[Page 42406]]

above, the Commission indicated that publication of the ODP contract's 
prices is not indirect evidence of routine dissemination. The ODP 
contract's prices are published with those of numerous other contracts, 
which are of more interest to market participants. The Commission has 
concluded that traders likely do not specifically purchase the ICE data 
packages for the ODP contract's prices and do not consult such prices 
on a frequent and recurring basis in pricing cash market transactions.
    Lastly, ICE and EEI criticized the ECM Study since it did not 
specifically identify the ODP contract as a contract that is referred 
to by market participants on a frequent and recurring basis. In 
response, the Commission notes that it cited the ECM Study's general 
finding that some ICE electricity contracts appear to be regarded as 
price discovery markets merely as indication that an investigation of 
certain ICE contracts may be warranted. The ECM Study was not intended 
to serve as the sole basis for determining whether or not a particular 
contract meets the material price reference criterion.
ii. Conclusion Regarding Material Price Reference
    Based on the above, the Commission finds that the ICE ODP contract 
does not meet the material price reference criterion because cash 
market transactions are not priced either explicitly or implicitly on a 
frequent and recurring basis at a differential to the ODP contract's 
price (direct evidence). Moreover, while the ODP contract's price data 
is sold to market participants, those individuals likely do not 
purchase the ICE data packages specifically for the ODP contract's 
prices and do not consult such prices on a frequent and recurring basis 
in pricing cash market transactions (indirect evidence).
2. Material Liquidity Criterion
    To assess whether a contract meets the material liquidity 
criterion, the Commission first examines trading activity as a general 
measurement of the contract's size and potential importance. If the 
Commission finds that the contract in question meets a threshold of 
trading activity that would render it of potential importance, the 
Commission will then perform a statistical analysis to measure the 
effect that changes to the subject contract's prices potentially may 
have on prices for other contracts listed on an ECM or a DCM.
    The total number of transactions executed on ICE's electronic 
platform in the ODP contract was 723 in the second quarter of 2009, 
resulting in a daily average of 11.3 trades. During the same period, 
the ODP contract had a total trading volume of 7,448 contracts and an 
average daily trading volume of 116.4 contracts. Moreover, open 
interest as of June 30, 2009, was 256 contracts, which included trades 
executed on ICE's electronic trading platform, as well as trades 
executed off of ICE's electronic trading platform and then brought to 
ICE for clearing. In this regard, ICE does not differentiate between 
open interest created by a transaction executed on its trading platform 
and that created by a transaction executed off its trading 
platform.\33\
---------------------------------------------------------------------------

    \33\ 74 FR 54966 (October 26, 2009).
---------------------------------------------------------------------------

    In a subsequent filing dated March 24, 2010, ICE reported that 
total trading volume in the fourth quarter of 2009 was 12,304 contracts 
(or 189.3 contracts on a daily basis). In terms of number of 
transactions, 737 trades occurred in the fourth quarter of 2009 (11.3 
trades per day). As of December 31, 2009, open interest in the ODP 
contract was 488 contracts, which included trades executed on ICE's 
electronic trading platform, as well as trades executed off of ICE's 
electronic trading platform and then brought to ICE for clearing.
    The number of trades per day between the second and fourth quarters 
of 2009 was not substantial. In addition, trading activity in the ODP 
contract, as characterized by total quarterly volume, indicates that 
the ODP contract experiences trading activity that is similar to that 
of thinly traded futures markets.\34\ Thus, the ODP contract does not 
meet a threshold of trading activity that would render it of potential 
importance and no additional statistical analysis is warranted.\35\
---------------------------------------------------------------------------

    \34\ Staff has advised the Commission that in its experience, a 
thinly traded contract is, generally, one that has a quarterly 
trading volume of 100,000 contracts or less. In this regard, in the 
third quarter of 2009, physical commodity futures contracts with 
trading volume of 100,000 contracts or fewer constituted less than 
one percent of total trading volume of all physical commodity 
futures contracts.
    \35\ In establishing guidance to illustrate how it will evaluate 
the various criteria, or combinations of criteria, when determining 
whether a contract is a SPDC, the Commission made clear that 
``material liquidity itself would not be sufficient to make a 
determination that a contract is a [SPDC], * * * but combined with 
other factors it can serve as a guidepost indicating which contracts 
are functioning as [SPDCs].'' 17 CFR 36, Appendix A. For the reasons 
discussed above, the Commission has found that the ODP contract does 
not meet the material price reference criterion. In light of this 
finding and the Commission's Guidance cited above, there is no need 
to evaluate further the material liquidity criteria since the 
Commission believes it is not useful as the sole basis for a SPDC 
determination.
---------------------------------------------------------------------------

i. Federal Register Comments
    ICE stated that the ODP contract lacks a sufficient number of 
trades to meet the material liquidity criterion. Along with EPSA and 
EEI, ICE argued that the ODP contract cannot have a material effect on 
other contracts, such as those listed for trading by NYMEX, a DCM, 
because price linkage and the potential for arbitrage do not exist. 
Moreover, the DCM contracts do not cash settle to the ODP contract's 
price. Instead, the DCM contracts and the ODP contract are both cash 
settled based on physical transactions, which neither the ECM nor the 
DCM contracts can influence.
    ICE noted that the Commission's Guidance had posited concepts of 
liquidity that generally assumed a fairly constant stream of prices 
throughout the trading day and noted that the relatively low number of 
trades per day in the ODP contract did not meet this standard of 
liquidity. The Commission observes that a continuous stream of prices 
would indeed be an indication of liquidity for certain markets but the 
Guidance also notes that ``quantifying the levels of immediacy and 
price concession that would define material liquidity may differ from 
one market or commodity to another.'' \36\
---------------------------------------------------------------------------

    \36\ Guidance, supra.
---------------------------------------------------------------------------

    ICE opined that the Commission ``seems to have adopted a five trade 
per day test for material liquidity.'' To the contrary, the Commission 
adopted a five trades-per-day threshold as a reporting requirement to 
enable it to ``independently be aware of ECM contracts that may develop 
into SPDCs'' \37\ rather than solely relying upon an ECM to identify 
potential SPDCs to the Commission. Thus, any contract that meets this 
threshold may be subject to scrutiny as a potential SPDC; however, a 
contract will not be found to be a SPDC merely because it met the 
reporting threshold.
---------------------------------------------------------------------------

    \37\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    ICE proposed that the statistics provided by ICE were 
misinterpreted and misapplied by the Commission. In particular, ICE 
stated that the volume figures used in the Commission's analysis (cited 
above) ``include trades made in all months'' as well as in strips of 
contract months. ICE suggested that a more appropriate method of 
determining liquidity is to examine the activity in a single traded 
month of a given contract.'' \38\ It is the Commission's

[[Page 42407]]

opinion that liquidity, as it pertains to the ODP contract, is 
typically a function of trading activity in particular lead days and, 
given sufficient liquidity in such days, the ICE ODP contract itself 
would be considered liquid. In any event, in light of the fact that the 
Commission has found that the ODP contract does not meet the material 
price reference criterion, according to the Commission's Guidance, it 
would be unnecessary to evaluate whether the ODP contract meets the 
material liquidity criterion since it cannot be used alone for SPDC 
determination.
---------------------------------------------------------------------------

    \38\ In addition, ICE stated that the trades-per-day statistics 
that it provided to the Commission in its quarterly filing and which 
were cited in the Commission's October 26, 2009, Federal Register 
notice includes 2(h)(1) transactions, which were not completed on 
the electronic trading platform and should not be considered in the 
SPDC determination process. The Commission staff asked ICE to review 
the data it sent in its quarterly filings; ICE confirmed that the 
volume data it provided and which the Commission cited includes only 
transaction data executed on ICE's electronic trading platform. As 
noted above, supplemental data supplied by ICE confirmed that block 
trades are in addition to the trades that were conducted on the 
electronic platform; block trades comprise about 34 percent of all 
transactions in the ODP contract (as of the fourth quarter of 2009). 
Commission acknowledges that the open interest information it 
provided in its October 26, 2009, Federal Register notice includes 
transactions made off the ICE platform. However, once open interest 
is created, there is no way for ICE to differentiate between ``on-
exchange'' versus ``off-exchange'' created positions, and all such 
positions are fungible with one another and may be offset in any way 
agreeable to the position holder regardless of how the position was 
initially created.
---------------------------------------------------------------------------

ii. Conclusion Regarding Material Liquidity
    For the reasons discussed above, the Commission finds that the ODP 
contract does not meet the material liquidity criterion.
3. Overall Conclusion Regarding the ODP Contract
    After considering the entire record in this matter, including the 
comments received, the Commission has determined that the ICE ODP 
contract does not perform a significant price discovery function under 
the criteria established in section 2(h)(7) of the CEA. Specifically, 
the Commission has determined that the ODP contract does not meet the 
material price reference or material liquidity criteria at this time. 
Accordingly, the Commission is issuing the attached Order declaring 
that the ODP contract is not a SPDC.
    Issuance of this Order indicates that the Commission does not at 
this time regard ICE as a registered entity in connection with its ODP 
contract.\39\ Accordingly, with respect to its ODP contract, ICE is not 
required to comply with the obligations, requirements and timetables 
prescribed in Commission rule 36.3(c)(4) for ECMs with SPDCs. However, 
ICE must continue to comply with the applicable reporting requirements 
for ECMs.
---------------------------------------------------------------------------

    \39\ See 73 FR 75888, 75893 (Dec. 12, 2008).
---------------------------------------------------------------------------

c. The PJM WH Day-Ahead LMP Peak Daily (PDA) Contract and the SPDC 
Indicia

    The PDA contract is cash settled based on the arithmetic average of 
the peak-hour, day-ahead LMPs published by PJM Interconnection for its 
Western Hub for all peak hours during the day prior to power 
generation. The hourly LMPs are derived from power trades that result 
in physical delivery. The size of the PDA contract is 800 MWh, and the 
PDA contract is listed for 38 consecutive days.
    In general, electricity is bought and sold in an auction setting on 
an hourly basis at various points along the electrical grid. An LMP 
associated with a specific hour is calculated as the volume-weighted 
average price of all of the transactions where electricity is to be 
supplied and consumed during that hour.
    Electricity is traded in a day-ahead market as well as a real-time 
market. The day-ahead market establishes prices for electricity that is 
to be delivered during the specified hour on the following day. Day-
ahead prices are determined based on generation and energy transaction 
quotes offered in advance. Because the offers and bids are dependent on 
estimates of supply and demand, electricity needs usually are not 
perfectly satisfied in the day-ahead market. In this regard, on the day 
the electricity is transmitted and used, auction participants typically 
realize that they bought or sold either too much power or too little 
power. A real-time auction is operated to alleviate this problem by 
serving as a balancing mechanism. Specifically, electricity traders use 
the real-time market to sell excess electricity and buy additional 
power to meet demand.
    PJM Interconnection is an RTO that coordinates the movement of 
wholesale electricity in all or parts of Delaware, Illinois, Indiana, 
Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, 
Pennsylvania, Tennessee, Virginia, West Virginia and the District of 
Columbia. PJM Interconnection's transmission network is the largest 
centrally-dispatched grid in North America. PJM Interconnection 
dispatches about 163,500 MW of generating capacity over 56,350 miles of 
transmission lines and serves more than 51 million customers. The RTO's 
members, totaling more than 500, include power generators, transmission 
owners, electricity distributors, power marketers and large consumers.
    PJM Interconnection is responsible for operating a competitive 
wholesale electricity market as well as maintaining the reliability of 
the grid. The RTO acts as a neutral, independent party, and its 
activities are regulated by FERC. The company coordinates the 
continuous buying, selling and delivery of wholesale electricity 
through robust, open and competitive spot markets. In operating the 
markets, PJM Interconnection balances the needs of suppliers, wholesale 
customers and other market participants, and it continuously monitors 
market behavior.
    Electricity is priced at individual points along the transmission 
network called nodes. An electric grid has many interconnections or 
buses. RTOs group certain buses together to form hubs, which do not 
necessarily follow along state lines or geographic boundaries. Power 
also is priced at the hub level and serves as a basis for trading 
electricity. PJM Interconnnection has 11 hubs, including AEP GEN, AEP-
Dayton, Chicago GEN, Chicago, Dominion, Eastern, Northern Illinois, New 
Jersey, Ohio, West INT and Western Hub.\40\ The Western Hub is basket 
of 109 buses that stretch all the way from Erie, PA, to Washington, 
DC.\41\
---------------------------------------------------------------------------

    \40\ http://www.ferc.gov/market-oversight/mkt-electric/pjm.asp.
    \41\ http://www.ferc.gov/market-oversight/mkt-electric/pjm/2010/05-2010-elec-pjm-archive.pdf.
---------------------------------------------------------------------------

1. Material Price Reference Criterion
    The Commission's October 26, 2009, Federal Register notice 
identified the PDA contract as a potential SPDC based on the material 
price reference and material liquidity criteria. The Commission 
considered the fact that ICE sells its price data to market 
participants in a number of different packages which vary in terms of 
the hubs covered, time periods, and whether the data are daily only or 
historical. For example, ICE offers the ``East Power of Day'' package 
with access to all price data or just current prices plus a selected 
number of months (i.e., 12, 24, 36 or 48 months) of historical data. 
This package includes price data for the PDA contract.
    The Commission also noted that its October 2007 ECM Study found 
that in general, market participants view ICE as a price discovery 
market for certain electricity contracts. The study did not specify 
which markets performed this function; nevertheless, the Commission 
determined that the PDA contract, while not mentioned by name in the 
ECM Study, warranted further review.
    The Commission explains in its Guidance to the statutory criteria 
that in evaluating a contract under the material

[[Page 42408]]

price reference criterion, it will rely on one of two sources of 
evidence--direct and indirect--to determine that the price of a 
contract was being used as a material price reference and therefore, 
serving a significant price discovery function.\42\ With respect to 
direct evidence, the Commission will consider the extent to which, on a 
frequent and recurring basis, cash market bids, offers or transactions 
are directly based on, or quoted at a differential to, the prices 
generated on the ECM in question. Direct evidence may be established 
when cash market participants are quoting bid or offer prices or 
entering into transactions at prices that are set either explicitly or 
implicitly at a differential to prices established for the contract in 
question. Cash market prices are set explicitly at a differential to 
the section 2(h)(3) contract when, for instance, they are quoted in 
dollars and cents above or below the reference contract's price. Cash 
market prices are set implicitly at a differential to a section 2(h)(3) 
contract when, for instance, they are arrived at after adding to, or 
subtracting from the section 2(h)(3) contract, but then quoted or 
reported at a flat price. With respect to indirect evidence, the 
Commission will consider the extent to which the price of the contract 
in question is being routinely disseminated in widely distributed 
industry publications--or offered by the ECM itself for some form of 
remuneration--and consulted on a frequent and recurring basis by 
industry participants in pricing cash market transactions.
---------------------------------------------------------------------------

    \42\ 17 CFR Part 36, Appendix A.
---------------------------------------------------------------------------

    The PJM Western hub is a major pricing center for electricity in 
the eastern portion of the United States. Traders, including producers, 
keep abreast of the electricity prices at PJM Interconnection's Western 
Hub when conducting cash deals. Power prices in other neighboring 
markets, such as New York ISO's Zone A (Western New York), Zone G 
(Hudson Valley region) and Zone J (New York City) as well as Midwest 
ISO's Cinergy hub are typically based implicitly relative to the prices 
reported for PJM Interconnection's Western hub. However, ICE's PJM WH 
Real Time Peak (``PJM'') contract, which is a monthly contract, is used 
more widely as a source of pricing information for electricity than the 
daily, peak-hour day-ahead contract (i.e., the PDA contract). 
Specifically, the PJM contract prices power at the Western Hub based on 
the simple average of the real time, peak-hour prices over the contract 
month, as reported by PJM Interconnection. Market participants use the 
PJM contract to lock-in electricity prices far into the future. (The 
PJM contract is listed up to 110 months into the future.) In contrast, 
the PDA contract is listed for a much shorter length of time (about 
five weeks); with such a limited timeframe, the forward pricing 
capability of the PDA contract is much more constrained than that of 
the PJM contract. Traders use monthly power contracts like the PJM 
contract to price electricity commitments in the future, where such 
commitments are based on long range forecasts of power supply and 
demand. As generation and usage nears, market participants have a 
better understanding of actual power supply and needs. As a result, 
traders can modify previously-established hedges with the daily power 
contracts.
    Accordingly, although the Western Hub is a major trading center for 
electricity and, as noted, ICE sells price information for the PDA 
contract, the Commission has explained in its Guidance that a contract 
meeting the material price reference criterion would routinely be 
consulted by industry participants in pricing cash market transactions. 
The PDA contract is not consulted in this manner and does not satisfy 
the material price reference criterion. Thus, the PDA contract does not 
satisfy the direct price reference test for existence of material price 
reference. Furthermore, the Commission notes that publication of the 
PDA contract's prices is not indirect evidence of material price 
reference. The PDA contract's prices are published with those of 
numerous other contracts, including ICE's monthly electricity contracts 
(such as the PJM contract), which are of more interest to market 
participants. In these circumstances, the Commission has concluded that 
traders likely do not specifically purchase ICE data packages for the 
PDA contract's prices and do not consult such prices on a frequent and 
recurring basis in pricing cash market transactions.
i. Federal Register Comments
    EPSA, FIEG, EEI and ICE stated that no other contract directly 
references or settles to the PDA contract's price. Moreover, the 
commenters argued that the underlying cash price series against which 
the PDA contract is settled \43\ is the authentic reference price and 
not the ICE contract itself. Commission staff believes that this 
interpretation of price reference is too narrow and believes that a 
cash-settled derivatives contract could meet the price reference 
criterion if market participants ``consult [the derivatives contract] 
on a frequent and recurring basis'' when pricing forward, fixed-price 
commitments or other cash-settled derivatives that seek to ``lock-in'' 
a fixed price for some future point in time to hedge against adverse 
price movements. As noted above, while Western Hub is a major power 
market, traders do not consider the daily average peak-hour, day-ahead 
Western Hub price to be as important as the peak, real-time electricity 
price associated with the monthly contract.
---------------------------------------------------------------------------

    \43\ In this case, the average of the real-time peak-hour 
Western hub electricity prices over the day of generation, which are 
derived from cash market transactions.
---------------------------------------------------------------------------

    In addition, EPSA stated that the publication of price data for the 
PDA contract price is a weak justification for material price reference 
because market participants generally do not purchase ICE data sets for 
one contract's prices, such as those for the PDA contract. Instead, 
traders are interested in the settlement prices, so the fact that ICE 
sells the PDA prices as part of a broad package is not conclusive 
evidence that market participants are buying the ICE data sets because 
they find the PDA prices have substantial value. As noted above, the 
Commission indicated that publication of the PDA contract's prices is 
not indirect evidence of routine dissemination. The PDA contract's 
prices are published with those of numerous other contracts, which are 
of more interest to market participants. The Commission has concluded 
that traders likely do not specifically purchase the ICE data packages 
for the PDA contract's prices and do not consult such prices on a 
frequent and recurring basis in pricing cash market transactions.
    Lastly, ICE and EEI criticized the ECM Study since it did not 
specifically identify the ODP contract as a contract that is referred 
to by market participants on a frequent and recurring basis. In 
response, the Commission notes that it cited the ECM Study's general 
finding that some ICE electricity contracts appear to be regarded as 
price discovery markets merely as indication that an investigation of 
certain ICE contracts may be warranted. The ECM Study was not intended 
to serve as the sole basis for determining whether or not a particular 
contract meets the material price reference criterion.
ii. Conclusion Regarding Material Price Reference
    Based on the above, the Commission finds that the ICE PDA contract 
does not meet the material price reference criterion because cash 
market transactions are not priced either explicitly or implicitly on a 
frequent

[[Page 42409]]

and recurring basis at a differential to the PDA contract's price 
(direct evidence). Moreover, while the PDA contract's price data is 
sold to market participants, those individuals likely do not purchase 
the ICE data packages specifically for the PDA contract's prices and do 
not consult such prices on a frequent and recurring basis in pricing 
cash market transactions (indirect evidence).
2. Material Liquidity Criterion
    To assess whether a contract meets the material liquidity 
criterion, the Commission first examines trading activity as a general 
measurement of the contract's size and potential importance. If the 
Commission finds that the contract in question meets a threshold of 
trading activity that would render it of potential importance, the 
Commission will then perform a statistical analysis to measure the 
effect that changes to the subject contract's prices potentially may 
have on prices for other contracts listed on an ECM or a DCM.
    The total number of transactions executed on ICE's electronic 
platform in the PDA contract was 1,063 in the second quarter of 2009, 
resulting in a daily average of 16.6 trades. During the same period, 
the PDA contract had a total trading volume of 1,435 contracts and an 
average daily trading volume of 22.4 contracts. Moreover, open interest 
as of June 30, 2009, was 75 contracts, which included trades executed 
on ICE's electronic trading platform, as well as trades executed off of 
ICE's electronic trading platform and then brought to ICE for clearing. 
In this regard, ICE does not differentiate between open interest 
created by a transaction executed on its trading platform and that 
created by a transaction executed off its trading platform.\44\
---------------------------------------------------------------------------

    \44\ 74 FR 54966 (October 26, 2009).
---------------------------------------------------------------------------

    In a subsequent filing dated March 24, 2010, ICE reported that 
total trading volume in the fourth quarter of 2009 was 1,960 contracts 
(or 30.2 contracts on a daily basis). In terms of number of 
transactions, 1,181 trades occurred in the fourth quarter of 2009 (19.2 
trades per day). As of December 31, 2009, open interest in the PDA 
contract was 45 contracts, which included trades executed on ICE's 
electronic trading platform, as well as trades executed off of ICE's 
electronic trading platform and then brought to ICE for clearing.
    The number of trades per day between the second and fourth quarters 
of 2009 was not substantial. In addition, trading activity in the PDA 
contract, as characterized by total quarterly volume, indicates that 
the PDA contract experiences trading activity that is similar to that 
of thinly-traded futures markets.\45\ Thus, the PDA contract does not 
meet a threshold of trading activity that would render it of potential 
importance and no additional statistical analysis is warranted.\46\
---------------------------------------------------------------------------

    \45\ Staff has advised the Commission that in its experience, a 
thinly-traded contract is, generally, one that has a quarterly 
trading volume of 100,000 contracts or less. In this regard, in the 
third quarter of 2009, physical commodity futures contracts with 
trading volume of 100,000 contracts or fewer constituted less than 
one percent of total trading volume of all physical commodity 
futures contracts.
    \46\ In establishing guidance to illustrate how it will evaluate 
the various criteria, or combinations of criteria, when determining 
whether a contract is a SPDC, the Commission made clear that 
``material liquidity itself would not be sufficient to make a 
determination that a contract is a [SPDC], * * * but combined with 
other factors it can serve as a guidepost indicating which contracts 
are functioning as [SPDCs].'' 17 CFR Part 36, Appendix A. For the 
reasons discussed above, the Commission has found that the PDA 
contract does not meet the material price reference criterion. In 
light of this finding and the Commission's Guidance cited above, 
there is no need to evaluate further the material liquidity criteria 
since the Commission believes it is not useful as the sole basis for 
a SPDC determination.
---------------------------------------------------------------------------

i. Federal Register Comments
    ICE stated that the PDA contract lacks a sufficient number of 
trades to meet the material liquidity criterion. Along with EPSA and 
EEI, ICE argued that the PDA contract cannot have a material effect on 
other contracts, such as those listed for trading by NYMEX, a DCM, 
because price linkage and the potential for arbitrage do not exist. 
Moreover, the DCM contracts do not cash settle to the PDA contract's 
price. Instead, the DCM contracts and the PDA contract are both cash 
settled based on physical transactions, which neither the ECM nor the 
DCM contracts can influence.
    ICE noted that the Commission's Guidance had posited concepts of 
liquidity that generally assumed a fairly constant stream of prices 
throughout the trading day and noted that the relatively low number of 
trades per day in the PDA contract did not meet this standard of 
liquidity. The Commission observes that a continuous stream of prices 
would indeed be an indication of liquidity for certain markets but the 
Guidance also notes that ``quantifying the levels of immediacy and 
price concession that would define material liquidity may differ from 
one market or commodity to another.'' \47\
---------------------------------------------------------------------------

    \47\ Guidance, supra.
---------------------------------------------------------------------------

    ICE opined that the Commission ``seems to have adopted a five trade 
per day test for material liquidity.'' To the contrary, the Commission 
adopted a five trades-per-day threshold as a reporting requirement to 
enable it to ``independently be aware of ECM contracts that may develop 
into SPDCs'' \48\ rather than solely relying upon an ECM to identify 
potential SPDCs to the Commission. Thus, any contract that meets this 
threshold may be subject to scrutiny as a potential SPDC; however, a 
contract will not be found to be a SPDC merely because it met the 
reporting threshold.
---------------------------------------------------------------------------

    \48\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    ICE proposed that the statistics provided by ICE were 
misinterpreted and misapplied by the Commission. In particular, ICE 
stated that the volume figures used in the Commission's analysis (cited 
above) ``include trades made in all months'' as well as in strips of 
contract months. ICE suggested that a more appropriate method of 
determining liquidity is to examine the activity in a single traded 
month of a given contract.'' \49\ It is the Commission's opinion that 
liquidity, as it pertains to the PDA contract, is typically a function 
of trading activity in particular lead days and, given sufficient 
liquidity in such days, the ICE PDA contract itself would be considered 
liquid. In any event, in light of the fact that the Commission has 
found that the PDA contract does not meet the material price reference 
criterion, according to the Commission's Guidance, it would be 
unnecessary to evaluate whether the PDA contract meets the material 
liquidity criterion since it cannot be used alone for SPDC 
determination.
---------------------------------------------------------------------------

    \49\ In addition, ICE stated that the trades-per-day statistics 
that it provided to the Commission in its quarterly filing and which 
were cited in the Commission's October 26, 2009, Federal Register 
notice includes 2(h)(1) transactions, which were not completed on 
the electronic trading platform and should not be considered in the 
SPDC determination process. The Commission staff asked ICE to review 
the data it sent in its quarterly filings; ICE confirmed that the 
volume data it provided and which the Commission cited includes only 
transaction data executed on ICE's electronic trading platform. As 
noted above, supplemental data supplied by ICE confirmed that block 
trades are in addition to the trades that were conducted on the 
electronic platform; block trades comprise about five percent of all 
transactions in the PDA contract (as of the fourth quarter of 2009). 
Commission acknowledges that the open interest information it 
provided in its October 26, 2009, Federal Register notice includes 
transactions made off the ICE platform. However, once open interest 
is created, there is no way for ICE to differentiate between ``on-
exchange'' versus ``off-exchange'' created positions, and all such 
positions are fungible with one another and may be offset in any way 
agreeable to the position holder regardless of how the position was 
initially created.
---------------------------------------------------------------------------

ii. Conclusion Regarding Material Liquidity
    For the reasons discussed above, the Commission finds that the PDA 
contract does not meet the material liquidity criterion.

[[Page 42410]]

3. Overall Conclusion Regarding the PDA Contract
    After considering the entire record in this matter, including the 
comments received, the Commission has determined that the ICE PDA 
contract does not perform a significant price discovery function under 
the criteria established in section 2(h)(7) of the CEA. Specifically, 
the Commission has determined that the PDA contract does not meet the 
material price reference or material liquidity criteria at this time. 
Accordingly, the Commission is issuing the attached Order declaring 
that the PDA contract is not a SPDC.
    Issuance of this Order indicates that the Commission does not at 
this time regard ICE as a registered entity in connection with its PDA 
contract.\50\ Accordingly, with respect to its PDA contract, ICE is not 
required to comply with the obligations, requirements and timetables 
prescribed in Commission rule 36.3(c)(4) for ECMs with SPDCs. However, 
ICE must continue to comply with the applicable reporting requirements 
for ECMs.
---------------------------------------------------------------------------

    \50\ See 73 FR 75888, 75893 (Dec. 12, 2008).
---------------------------------------------------------------------------

V. Related Matters

a. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \51\ imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. Certain provisions of Commission 
rule 36.3 impose new regulatory and reporting requirements on ECMs, 
resulting in information collection requirements within the meaning of 
the PRA. OMB previously has approved and assigned OMB control number 
3038-0060 to this collection of information.
---------------------------------------------------------------------------

    \51\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

b. Cost-Benefit Analysis

    Section 15(a) of the CEA \52\ requires the Commission to consider 
the costs and benefits of its actions before issuing an order under the 
Act. By its terms, section 15(a) does not require the Commission to 
quantify the costs and benefits of an order or to determine whether the 
benefits of the order 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 
order is necessary or appropriate to protect the public interest or to 
effectuate any of the provisions or accomplish any of the purposes of 
the Act.
---------------------------------------------------------------------------

    \52\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    When a futures contract begins to serve a significant price 
discovery function, that contract, and the ECM on which it is traded, 
warrants increased oversight to deter and prevent price manipulation or 
other disruptions to market integrity, both on the ECM itself and in 
any related futures contracts trading on DCMs. An Order finding that a 
particular contract is a SPDC triggers this increased oversight and 
imposes obligations on the ECM calculated to accomplish this goal. The 
increased oversight engendered by the issue of a SPDC Order increases 
transparency and helps to ensure fair competition among ECMs and DCMs 
trading similar products and competing for the same business. Moreover, 
the ECM on which the SPDC is traded must assume, with respect to that 
contract, all the responsibilities and obligations of a registered 
entity under the CEA and Commission regulations. Additionally, the ECM 
must comply with nine core principles established by section 2(h)(7) of 
the Act--including the obligation to establish position limits and/or 
accountability standards for the SPDC. Section 4(i) of the CEA 
authorize the Commission to require reports for SPDCs listed on ECMs. 
These increased responsibilities, along with the CFTC's increased 
regulatory authority, subject the ECM's risk management practices to 
the Commission's supervision and oversight and generally enhance the 
financial integrity of the markets.
    The Commission has concluded that the PDP, OPD and PDA contracts, 
which are the subject of the attached Orders, are not SPDCs; 
accordingly, the Commission's Orders impose no additional costs and no 
additional statutorily or regulatory mandated responsibilities on the 
ECM.

c. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \53\ requires that 
agencies consider the impact of their rules on small businesses. The 
requirements of CEA section 2(h)(7) and the Part 36 rules affect ECMs. 
The Commission previously has determined that ECMs are not small 
entities for purposes of the RFA.\54\ Accordingly, the Chairman, on 
behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) 
that these Orders, taken in connection with section 2(h)(7) of the Act 
and the Part 36 rules, will not have a significant impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \53\ 5 U.S.C. 601 et seq.
    \54\ 66 FR 42256, 42268 (Aug. 10, 2001).
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VI. Orders

a. Order Relating to the PJM WH Real Time Peak Daily Contract

    After considering the complete record in this matter, including the 
comment letters received in response to its request for comments, the 
Commission has determined to issue the following Order:
    The Commission, pursuant to its authority under section 2(h)(7) of 
the Act, hereby determines that the PJM WH Real Time Peak Daily 
contract, traded on the IntercontinentalExchange, Inc., does not at 
this time satisfy the material price preference or material liquidity 
criteria for significant price discovery contracts. Consistent with 
this determination, the IntercontinentalExchange, Inc., is not 
considered a registered entity \55\ with respect to the PJM WH Real 
Time Peak Daily contract and is not subject to the provisions of the 
Commodity Exchange Act applicable to registered entities. Further, the 
obligations, requirements and timetables prescribed in Commission rule 
36.3(c)(4) governing core principle compliance by the 
IntercontinentalExchange, Inc., are not applicable to the PJM WH Real 
Time Peak Daily contract with the issuance of this Order.
---------------------------------------------------------------------------

    \55\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    This Order is based on the representations made to the Commission 
by the IntercontinentalExchange, Inc., dated July 27, 2009, and March 
24, 2010, and other supporting material. Any material change or 
omissions in the facts and circumstances pursuant to which this order 
is granted might require the Commission to reconsider its current 
determination that the PJM WH Real Time Peak Daily contract is not a 
significant price discovery contract. Additionally, to the extent that 
it continues to rely upon the exemption in Section 2(h)(3) of the Act, 
the IntercontinentalExchange, Inc., must continue to comply with all of 
the applicable requirements of Section

[[Page 42411]]

2(h)(3) and Commission Regulation 36.3.

b. Order Relating to the PJM WH Real Time Off-Peak Daily Contract

    After considering the complete record in this matter, including the 
comment letters received in response to its request for comments, the 
Commission has determined to issue the following Order:
    The Commission, pursuant to its authority under section 2(h)(7) of 
the Act, hereby determines that the PJM WH Real Time Off-Peak Daily 
contract, traded on the IntercontinentalExchange, Inc., does not at 
this time satisfy the material price preference or material liquidity 
criteria for significant price discovery contracts. Consistent with 
this determination, the IntercontinentalExchange, Inc., is not 
considered a registered entity \56\ with respect to the PJM WH Real 
Time Off-Peak Daily contract and is not subject to the provisions of 
the Commodity Exchange Act applicable to registered entities. Further, 
the obligations, requirements and timetables prescribed in Commission 
rule 36.3(c)(4) governing core principle compliance by the 
IntercontinentalExchange, Inc., are not applicable to the PJM WH Real 
Time Off-Peak Daily contract with the issuance of this Order.
---------------------------------------------------------------------------

    \56\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    This Order is based on the representations made to the Commission 
by the IntercontinentalExchange, Inc., dated July 27, 2009, and March 
24, 2010, and other supporting material. Any material change or 
omissions in the facts and circumstances pursuant to which this order 
is granted might require the Commission to reconsider its current 
determination that the PJM WH Real Time Off-Peak Daily contract is not 
a significant price discovery contract. Additionally, to the extent 
that it continues to rely upon the exemption in Section 2(h)(3) of the 
Act, the IntercontinentalExchange, Inc., must continue to comply with 
all of the applicable requirements of Section 2(h)(3) and Commission 
Regulation 36.3.

c. Order Relating to the PJM WH Day Ahead LMP Peak Daily Contract

    After considering the complete record in this matter, including the 
comment letters received in response to its request for comments, the 
Commission has determined to issue the following Order:
    The Commission, pursuant to its authority under section 2(h)(7) of 
the Act, hereby determines that the PJM WH Day Ahead LMP Peak Daily 
contract, traded on the IntercontinentalExchange, Inc., does not at 
this time satisfy the material price preference or material liquidity 
criteria for significant price discovery contracts. Consistent with 
this determination, the IntercontinentalExchange, Inc., is not 
considered a registered entity \57\ with respect to the PJM WH Day 
Ahead LMP Peak Daily contract and is not subject to the provisions of 
the Commodity Exchange Act applicable to registered entities. Further, 
the obligations, requirements and timetables prescribed in Commission 
rule 36.3(c)(4) governing core principle compliance by the 
IntercontinentalExchange, Inc., are not applicable to the PJM WH Day 
Ahead LMP Peak Daily contract with the issuance of this Order.
---------------------------------------------------------------------------

    \57\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    This Order is based on the representations made to the Commission 
by the IntercontinentalExchange, Inc., dated July 27, 2009, and March 
24, 2010, and other supporting material. Any material change or 
omissions in the facts and circumstances pursuant to which this order 
is granted might require the Commission to reconsider its current 
determination that the PJM WH Day Ahead LMP Peak Daily contract is not 
a significant price discovery contract. Additionally, to the extent 
that it continues to rely upon the exemption in Section 2(h)(3) of the 
Act, the IntercontinentalExchange, Inc., must continue to comply with 
all of the applicable requirements of Section 2(h)(3) and Commission 
Regulation 36.3.

    Issued in Washington, DC, on July 9, 2010, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-17744 Filed 7-20-10; 8:45 am]
BILLING CODE 6351-01-P
```