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46 5 U.S.C. 601 et seq. 

47 66 FR 42256, 42268 (Aug. 10, 2001). 

48 7 U.S.C. 1a(29). 

49Because ICE already lists for trading a contract 

(i.e., the Henry Financial LD1 Fixed Price contract) 

that was previously declared by the Commission to 

be a SPDC, ICE must submit a written 

demonstration of compliance with the Core 

Principles within 30 calendar days of the date of 

this Order. 17 CFR 36.3(c)(4). 

50 7 U.S.C. 1a(29). 

51Because ICE already lists for trading a contract 

(i.e., the Henry Financial LD1 Fixed Price contract) 

that was previously declared by the Commission to 

be a SPDC, ICE must submit a written 

demonstration of compliance with the Core 

Principles within 30 calendar days of the date of 

this Order. 17 CFR 36.3(c)(4). 

1 74 FR 54966 (October 26, 2009). 

2The 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. 

3The acronym ‘‘WH’’ signifies the PJM 

Interconnection’s Western Hub. 

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. 

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. 

c. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 46 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.47 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. 

VI. Orders 

a. Order Relating to the PJM WH Real 

Time Peak 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 contract, traded on the 

IntercontinentalExchange, Inc., satisfies 

the material price preference and 

material liquidity criteria for significant 

price discovery contracts. Consistent 

with this determination, and effective 

immediately, the 

IntercontinentalExchange, Inc., must 

comply with, with respect to the PJM 

WH Real Time Peak contract, the nine 

core principles established by new 

section 2(h)(7)(C). Additionally, the 

IntercontinentalExchange, Inc., shall be 

and is considered a registered entity 48

with respect to the PJM WH Real Time 

Peak contract and is subject to all the 

provisions of the Commodity Exchange 

Act applicable to registered entities. 

Further with respect to the PJM WH 

Real Time Peak contract, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., 

commence with the issuance of this 

Order.49

b. Order Relating to the PJM WH Real 

Time Off-Peak 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 contract, traded on 

the IntercontinentalExchange, Inc., 

satisfies the statutory material price 

reference and material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, and 

effective immediately, the 

IntercontinentalExchange, Inc., must 

comply with, with respect to the PJM 

WH Real Time Off-Peak contract, the 

nine core principles established by new 

section 2(h)(7)(C). Additionally, the 

IntercontinentalExchange, Inc., shall be 

and is considered a registered entity 50

with respect to the PJM WH Real Time 

Off-Peak contract and is subject to all 

the provisions of the Commodity 

Exchange Act applicable to registered 

entities. 

Further with respect to the PJM WH 

Real Time Off-Peak contract, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., 

commence with the issuance of this 

Order.51

Issued in Washington, DC, on July 9, 2010, 

by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–17743 Filed 7–20–10; 8:45 am] 

BILLING CODE 6351–01–P 

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. 

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 


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4The 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. 

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). 

7 74 FR 12178 (Mar. 23, 2009); these rules became 

effective on April 22, 2009. 

8Public 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). 

9For 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. 

10As noted above, the Federal Register notice 

also requested comment on the PJM WH Real Time 

Peak (‘‘PJM’’) contract and PJM WH Real Time OffPeak (‘‘OPJ’’) contract. The PJM and OPJ contracts 

will be addressed in a separate Federal Register 

release. 

11The 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. 

12PJM 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. 

(‘‘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. 

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. Email: 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). 

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. 

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

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 contracts10 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 


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13PJM Interconnection stated that it ‘‘takes no 

position as to whether the ICE [contracts] * * * 

perform significant price discovery functions.’’ 

14FERC 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.’’ 

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. 

17An 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. 

Interconnection,13 FERC14 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. 

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. 

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. 

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 


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18http://www.ferc.gov/market-oversight/mktelectric/pjm.asp. 

19http://www.ferc.gov/market-oversight/mktelectric/pjm/2010/05-2010-elec-pjm-archive.pdf. 20 17 CFR Part 36, Appendix A. 21 In this case, the average of the real-time peakhour Western hub electricity prices over the day of 

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

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. 

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 previouslyestablished 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 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42403 

generation, which are derived from cash market 

transactions. 22 74 FR 54966 (October 26, 2009). 

23Staff 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. 

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 cashsettled 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. 

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

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

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 


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25 Guidance, supra. 

26 73 FR 75892 (December 12, 2008). 

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

would define material liquidity may 

differ from one market or commodity to 

another.’’ 25

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. 

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. 

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. 

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 offpeak 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, 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42405 

29http://www.ferc.gov/market-oversight/mktelectric/pjm.asp. 

30http://www.ferc.gov/market-oversight/mktelectric/pjm/2010/05-2010-elec-pjm-archive.pdf. 

31 17 CFR Part 36, Appendix A. 

32 In this case, the average of the real-time peakhour Western hub electricity prices over the day of 

generation, which are derived from cash market 

transactions. 

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

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. 

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 offpeak 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 cashsettled 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. 

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 


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42406 Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 

33 74 FR 54966 (October 26, 2009). 

34Staff 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. 

36 Guidance, supra. 

37 73 FR 75892 (December 12, 2008). 

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 

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

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

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

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. 

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 


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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. 

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

40http://www.ferc.gov/market-oversight/mktelectric/pjm.asp. 

41http://www.ferc.gov/market-oversight/mktelectric/pjm/2010/05-2010-elec-pjm-archive.pdf. 

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. 

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. 

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

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 


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42 17 CFR Part 36, Appendix A. 

43 In this case, the average of the real-time peakhour Western hub electricity prices over the day of 

generation, which are derived from cash market 

transactions. 

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. 

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 cashsettled 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. 

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 


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44 74 FR 54966 (October 26, 2009). 

45Staff 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. 

47 Guidance, supra. 

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

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

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

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

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. 

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. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the PDA contract 

does not meet the material liquidity 

criterion. 


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

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

52 7 U.S.C. 19(a). 53 5 U.S.C. 601 et seq. 

54 66 FR 42256, 42268 (Aug. 10, 2001). 

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

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. 

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. 

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. 

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. 

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. 

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 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42411 

56 7 U.S.C. 1a(29). 57 7 U.S.C. 1a(29). 

1 74 FR 51264 (October 6, 2009). 

2The acronym ‘‘SP’’ stands for ‘‘South Path.’’ 

3The acronym ‘‘NP’’ stands for ‘‘North Path.’’ 

4The Federal Register notice also requested 

comment on the SP–15 Financial Day-Ahead LMP 

Peak (‘‘SPM’’) contract and SP–15 Financial DayAhead LMP Off-Peak (‘‘OFP’’) contract; these 

contracts will be addressed in a separate Federal 

Register release. 

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 OffPeak 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. 

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. 

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 

COMMODITY FUTURES TRADING 

COMMISSION 

Orders Finding That the SP–15 

Financial Day-Ahead LMP Peak Daily 

Contract; SP–15 Financial Day-Ahead 

LMP Off-Peak Daily Contract; SP–15 

Financial Swap Real Time LMP–Peak 

Daily Contract; NP–15 Financial DayAhead LMP Peak Daily Contract and 

NP–15 Financial Day-Ahead LMP OffPeak 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. 

SUMMARY: On October 6, 2009, the 

Commodity Futures Trading 

Commission (‘‘CFTC’’ or ‘‘Commission’’) 

published for comment in the Federal 

Register1 a notice of its intent to 

undertake a determination whether the 

SP–152 Financial Day-Ahead LMP Peak 

Daily (‘‘SDP’’) contract; SP–15 Financial 

Day-Ahead LMP Off-Peak Daily (‘‘SQP’’) 

contract; SP–15 Financial Swap Real 

Time LMP–Peak Daily (‘‘SRP’’) contract; 

NP–153 Financial Day-Ahead LMP Peak 

Daily (‘‘DPN’’) contract; and NP–15 

Financial Day-Ahead LMP Off-Peak 

Daily (‘‘UNP’’) 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 SDP, SQP, SRP, 

DPN and UNP 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. 

DATES: Effective date: July 9, 2010. 


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