Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Notices 24655 

40Because 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 52202 (October 9, 2009). 

2 Incorporated as Title XIII of the Food, 

Conservation and Energy Act of 2008, Public Law 

110–246, 122 Stat. 1624 (June 18, 2008). 

3 7 U.S.C. 1a(29). 

4 74 FR 12178 (Mar. 23, 2009); these rules became 

effective on April 22, 2009. 

5Public 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). 

6For 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. 

7The 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. 

core principle compliance by the 

IntercontinentalExchange, Inc., 

commence with the issuance of this 

Order.40

Issued in Washington, DC, on April 28, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–10335 Filed 5–4–10; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

Order Finding That the ICE Waha 

Financial Basis Contract Traded on the 

IntercontinentalExchange, Inc., 

Performs a Significant Price Discovery 

Function 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final order. 

SUMMARY: On October 9, 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 

Waha Financial Basis (‘‘WAH’’) contract, 

traded 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’’), performs 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 an order finding that the WAH 

contract performs 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: April 28, 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’’) 2

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.3 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.4 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 prices 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.5 The issuance of such an order 

also triggers the obligations, 

requirements and timetables prescribed 

in Commission rule 36.3(c)(4).6

II. Notice of Intent to Undertake SPDC 

Determination 

On October 9, 2009, the Commission 

published in the Federal Register notice 

of its intent to undertake a 

determination whether the WAH 

contract performs a significant price 

discovery function, and requested 

comment from interested parties.7

Comments were received from the 

Industrial Energy Consumers of America 

(‘‘IECA’’), Working Group of Commercial 

Energy Firms (‘‘WGCEF’’), ICE, Platts, 

Economists Incorporated (‘‘EI’’), Federal 

Energy Regulatory Commission 

(‘‘FERC’’), and Financial Institutions 


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8 IECA describes itself as an ‘‘association of 

leading manufacturing companies’’ whose 

membership ‘‘represents a diverse set of industries 

including: Plastics, cement, paper, food processing, 

brick, chemicals, fertilizer, insulation, steel, glass, 

industrial gases, pharmaceutical, aluminum and 

brewing.’’ WGCEF describes itself as ‘‘a diverse 

group of commercial firms in the domestic energy 

industry whose primary business activity is the 

physical delivery of one or more energy 

commodities to customers, including industrial, 

commercial and residential consumers’’ and whose 

membership consists of ‘‘energy producers, 

marketers and utilities.’’ ICE is an ECM, as noted 

above. McGraw-Hill, through its division Platts, 

compiles and calculates monthly natural gas price 

indices from natural gas trade data submitted to 

Platts by energy marketers. Platts includes those 

price indices in its monthly Inside FERC’s Gas 

Market Report (‘‘Inside FERC’’). EI is an economic 

consulting firm with offices located in Washington, 

DC, and San Francisco, CA. NGSA is an industry 

association comprised of natural gas producers and 

marketers. FERC is an independent Federal 

regulatory agency that, among other things, 

regulates the interstate transmission of natural gas, 

oil and electricity. 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.’’ The comment letters are 

available on the Commission’s Web site: http:// 

www.cftc.gov/lawandregulation/federalregister/ 

federalregistercomments/2009/09-025.html. 

9FERC stated that the WAH contract is cash 

settled and does not contemplate actual physical 

delivery of natural gas. Accordingly, FERC 

expressed the opinion that a determination by the 

Commission that a contract performs a significant 

price discovery function ‘‘would not appear to 

conflict with FERC’s exclusive jurisdiction under 

the Natural Gas Act (NGA) over certain sales of 

natural gas in interstate commerce for resale or with 

its other regulatory responsibilities under the NGA’’ 

and further that, ‘‘the FERC staff will continue to 

monitor for any such conflict * * * [and] advise the 

CFTC’’ should any such potential conflict arise. CL 

07. 

10 IECA stated that the subject ICE contract should 

‘‘be required to come into compliance with core 

principles mandated by Section 2(h)(7) of the Act 

and with other statutory provisions applicable to 

registered entities. [This contract] should be subject 

to the Commission’s position limit authority, 

emergency authority and large trader reporting 

requirements, among others.’’ CL 01. 

11 In its October 9, 2009, Federal Register release, 

the Commission identified material liquidity, 

material price reference and price linkage as the 

possible criteria for SPDC determination of the 

WAH contract. Arbitrage was not identified as a 

possible criterion and will not be discussed further 

in this document or the associated Order. 12 17 CFR part 36, Appendix A. 

Energy Group (‘‘FIEG’’).8 The comment 

letters from FERC9 and Platts did not 

directly address the issue of whether or 

not the WAH contract is a SPDC; IECA 

concluded that the WAH contract is a 

SPDC, but did not provide a basis for its 

conclusion.10 The other parties’ 

comments raised substantive issues 

with respect to the applicability of 

section 2(h)(7) to the WAH contract, 

generally asserting that the WAH 

contract is not a SPDC as it does not 

meet the material price reference, price 

linkage, and material liquidity criteria 

for SPDC determination. Those 

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.11 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.12 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 will consider 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 

a. The Waha Financial Basis (WAH) 

Contract and the SPDC Indicia 

The WAH contract is cash settled 

based on the difference between the 

bidweek price index of natural gas at the 

Waha hub in western Texas for the 

month of delivery, as published in 

Platts’ Inside FERC’s Gas Market Report, 

and the final settlement price of the 

New York Mercantile Exchange’s 

(‘‘NYMEX’s’’) physically-delivered 

Henry Hub natural gas futures contract 

for the same calendar month. The Platts 

bidweek price, which is published 

monthly, is based on a survey of cash 

market traders who voluntarily report to 

Platts data on fixed-price transactions 

for physical delivery of natural gas at 

the Waha hub conducted during the last 

five business days of the month; such 

bidweek transactions specify the 

delivery of natural gas on a uniform 

basis throughout the following calendar 

month at the agreed upon rate. Platts’ 

current policy is to use physical deals 

into interstate and intrastate pipelines at 

the outlet of the Waha header system 

and in the Waha vicinity in the Permian 

Basin in West Texas. Pipelines include 

El Paso Natural Gas, Transwestern 

Pipeline, Natural Gas Pipeline Co. of 

America, Northern Natural Gas, Delhi 

Pipeline, Oasis Pipeline, EPGT Texas 

and Lone Star Pipeline. The Platt’s 


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13The term ‘‘hub’’ refers to a juncture where two 

or more natural gas pipelines are connected. Hubs 

also serve as pricing points for natural gas at the 

particular locations. 

14See http://www.eia.doe.gov/pub/oil_gas/ 

natural_gas/feature_articles/2009/ngmarketcenter/ 

ngmarketcenter.pdf. 

15See http://www.eia.doe.gov/pub/oil_gas/ 

natural_gas/feature_articles/2009/ngmarketcenter/ 

ngmarketcenter.pdf. 

16Basis contracts denote the difference in the 

price of natural gas at a specified location minus the 

price of natural gas at the Henry Hub. The 

differential can be either a positive or negative 

value. 

17As noted above, the Commission did not find 

an indication of arbitrage in connection with this 

contract; accordingly, that criterion was not 

discussed in reference to the WAH contract. 

18The OTC Gas End of Day dataset includes daily 

settlement prices for natural gas contracts listed for 

all points in North America. 

19http://www.cftc.gov/ucm/groups/public/ 

@newsroom/documents/file/pr5403-07

_ecmreport.pdf. 

bidweek index is published on the first 

business day of the calendar month in 

which the natural gas is to be delivered. 

The size of the WAH contract is 2,500 

million British thermal units (‘‘mmBtu’’), 

and the unit of trading is any multiple 

of 2,500 mmBtu. The WAH contract is 

listed for up to 72 calendar months 

commencing with the next calendar 

month. 

The Henry Hub,13 which is located in 

Erath, Louisiana, is the primary cash 

market trading and distribution center 

for natural gas in the United States. It 

also is the delivery point and pricing 

basis for the NYMEX’s actively traded, 

physically-delivered natural gas futures 

contract, which is the most important 

pricing reference for natural gas in the 

United States. The Henry Hub, which is 

operated by Sabine Pipe Line, LLC, 

serves as a juncture for 13 different 

pipelines. These pipelines bring in 

natural gas from fields in the Gulf Coast 

region and ship it to major consumption 

centers along the East Coast and 

Midwest. The throughput shipping 

capacity of the Henry Hub is 1.8 trillion 

mmBtu per day. 

In addition to the Henry Hub, there 

are a number of other locations where 

natural gas is traded. In 2008, there were 

33 natural gas market centers in North 

America.14 Some of the major trading 

centers include Alberta, Northwest 

Rockies, Southern California border and 

the Houston Ship Channel. For 

locations that are directly connected to 

the Henry Hub by one or more pipelines 

and where there typically is adequate 

shipping capacity, the price at the other 

locations usually directly tracks the 

price at the Henry Hub, adjusted for 

transportation costs. However, at other 

locations that are not directly connected 

to the Henry Hub or where shipping 

capacity is limited, the prices at those 

locations often diverge from the Henry 

Hub price. Furthermore, one local price 

may be significantly different than the 

price at another location even though 

the two markets’ respective distances 

from the Henry Hub are the same. The 

reason for such pricing disparities is 

that a given location may experience 

supply and demand factors that are 

specific to that region, such as 

differences in pipeline shipping 

capacity, unusually high or low demand 

for heating or cooling or supply 

disruptions caused by severe weather. 

As a consequence, local natural gas 

prices can differ from the Henry Hub 

price by more than the cost of shipping 

and such price differences can vary in 

an unpredictable manner. 

The Waha hub lies south of the 

prolific gas deposits in the San Juan and 

Permian Basins of West Texas, near the 

New Mexico border. The hub is 

accessible by several interstate and 

intrastate pipelines that serve customer 

bases in both the Western and 

Midwestern United States. As noted 

above, the cash market transactions 

included in the Platts index are those 

fixed-price gas deliveries into the 

following pipelines: El Paso Natural 

Gas, Transwestern Pipeline, Natural Gas 

Pipeline Company of America, Northern 

Natural Gas, Delhi Pipeline, Oasis 

Pipeline, EPGT Texas and Lone Star 

Pipeline. While the Waha pricing center 

does not appear to be far removed from 

the Henry Hub, the gas from Waha tends 

to flow to the Western and Midwest 

whereas the gas from the Henry Hub 

tends to flow East of the Mississippi. 

The Waha (EPGT) and Waha (CDP/ 

Atmos) Texas Hubs, two market centers 

near the Waha Hub, had an estimated 

throughput capacity in 2008 of 250 

million cubic feet per day and 300 

million cubic feet per day, respectively. 

Moreover, the number of pipeline 

interconnections at each market center 

was 10 in 2008. Lastly, the pipeline 

interconnection capacity of the Waha 

(EPGT) and Waha (CDP/Atmos) Texas 

Hubs in 2008 were 1.8 billion million 

cubic feet per day and 2.3 billion cubic 

feet per day, respectively.15 The Waha 

hub is removed from the Henry Hub and 

is not directly connected to the Henry 

Hub by an existing pipeline. 

The local price at the Waha hub 

typically differs from the price at the 

Henry Hub. Thus, the price of the Henry 

Hub physically-delivered futures 

contract is an imperfect proxy for the 

WAH contract’s price. Moreover, the 

Waha hub is landlocked and so is less 

susceptible to exogenous factors such as 

extreme weather, which can cause the 

Waha gas price to differ from the Henry 

Hub price by an amount that is more or 

less than the cost of shipping, making 

the NYMEX Henry Hub futures contract 

even less precise as a hedging tool than 

desired by market participants. Basis 

contracts 16 allow traders to more 

accurately discover prices at alternative 

locations and hedge price risk that is 

associated with natural gas at such 

locations. In this regard, a position at a 

local price for an alternative location 

can be established by adding the 

appropriate basis swap position to a 

position taken in the NYMEX 

physically-delivered Henry Hub 

contract (or in the NYMEX or ICE Henry 

Hub look-alike contract, which cash 

settle based on the NYMEX physicallydelivered natural gas contract’s final 

settlement price). 

In its October 9, 2009, Federal 

Register notice, the Commission 

identified material price reference, price 

linkage and material liquidity as the 

potential SPDC criteria applicable to the 

WAH contract. Each of these criteria is 

discussed below.17

1. Material Price Reference Criterion 

The Commission’s October 9, 2009, 

Federal Register notice identified 

material price reference as a potential 

basis for a SPDC determination with 

respect to this contract. 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 ‘‘OTC Gas End of Day’’ 18

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. These two 

packages include price data for the 

WAH 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’’)19 found that in 

general, market participants view the 

ICE as a price discovery market for 

certain natural gas contracts. The study 

did not specify which markets 

performed this function; nevertheless, 

the Commission determined that the 

WAH contract, while not mentioned by 

name in the ECM Study, might warrant 

further study. 

The Commission will rely on one of 

two sources of evidence—direct or 

indirect—to determine that the price of 

a contract was being used as a material 

price reference and therefore, serving a 


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20 17 CFR part 36, Appendix A. 

21 In addition to referencing ICE prices, natural 

gas market firms participating in the Waha market 

may rely on other cash market quotes as well as 

industry publications and price indices that are 

published by third-party price reporting firms in 

entering into natural gas transactions. 

22CL 04. 

23CL 04. 

24CL 02. 

25CL 05. 

26CL 08. 

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 Waha hub is a major trading 

center for natural gas in the United 

States. Traders, including producers, 

keep abreast of the prices of the WAH 

contract when conducting cash deals. 

These traders look to a competitively 

determined price as an indication of 

expected values of natural gas at Waha 

when entering into cash market 

transactions for natural gas, especially 

those trades providing for physical 

delivery in the future. Traders use the 

ICE WAH contract, as well as other ICE 

basis swap contracts, to hedge cash 

market positions and transactions— 

activities which enhance the WAH 

contract’s price discovery utility. The 

substantial volume of trading and open 

interest in the WAH contract appears to 

attest to its use for this purpose. While 

the WAH contract’s settlement prices 

may not be the only factor influencing 

spot and forward transactions, natural 

gas traders consider the ICE price to be 

a critical factor in conducting OTC 

transactions.21 As a result, the WAH 

contract satisfies the direct price 

reference test. 

In terms of indirect price reference, 

ICE sells the WAH contract’s prices as 

part of a broad package. The 

Commission notes that the Waha hub is 

a major natural gas trading point, and 

the WAH contract’s prices are well 

regarded in the industry as indicative of 

the value of natural gas at the Waha 

hub. Accordingly, the Commission 

believes that it is reasonable to conclude 

that market participants are purchasing 

the data packages that include the WAH 

contract’s prices in substantial part 

because the WAH contract prices have 

particular value to them. Moreover, 

such prices are consulted on a frequent 

and recurring basis by industry 

participants in pricing cash market 

transactions. In light of the above, the 

WAH contract meets the indirect price 

reference test. 

NYMEX lists a futures contract that is 

comparable to the ICE WAH contract on 

its ClearPort platform called the Waha 

Basis Swap (Platts IFERC) futures 

contract. However, unlike the ICE 

contract, none of the trades in the 

NYMEX contract are executed in 

NYMEX’s centralized marketplace; 

instead, all of the transactions originate 

as bilateral swaps that are submitted to 

NYMEX for clearing. The daily 

settlement prices of the NYMEX version 

of the WAH contract are influenced, in 

part, by the daily settlement prices of 

the ICE WAH contract. This is because 

NYMEX determines the daily settlement 

prices for its natural gas basis swap 

contracts through a survey of cash 

market voice brokers. Voice brokers, in 

turn, refer to the ICE WAH price, among 

other information, as an important 

indicator as to where the market is 

trading. Therefore, the ICE WAH price 

influences the settlement price for the 

NYMEX’s Waha contract. This is 

supported by an analysis of the daily 

settlement prices for the NYMEX Waha 

Basis Swap and ICE WAH contracts. In 

this regard, 99 percent of the daily 

settlement prices for the NYMEX Waha 

Basis Swap contract are within one 

standard deviation of the WAH 

contract’s price settlement prices. 

Lastly, the fact that the WAH contract 

does not meet the price linkage criterion 

(discussed below) bolsters the argument 

for material price reference. As noted 

above, the Henry Hub is the pricing 

reference for natural gas in the United 

States. However, regional market 

conditions may cause the price of 

natural gas in another area of the 

country to diverge by more than the cost 

of transportation, thus making the 

Henry Hub price an imperfect proxy for 

the local gas price. The more variable 

the local natural gas price is, the more 

traders need to accurately hedge their 

price risk. Basis swap contracts provide 

a means of more accurately pricing 

natural gas at a location other than the 

Henry Hub. An analysis of Waha natural 

gas prices showed that 96 percent of the 

observations were more than 2.5 percent 

different that the contemporaneous 

Henry Hub prices. The average Waha 

basis value between January 2008 and 

September 2009 was ¥$0.98 per mmBtu 

with a variance of $0.38 per mmBtu. 

i. Federal Register Comments 

ICE stated in its comment letter that 

the WAH contract does not meet the 

material price reference criterion for 

SPDC determination. ICE argued that 

the Commission appeared to base the 

case that the WAH contract is 

potentially a SPDC on what it 

characterizes as a disputable assertion. 

In issuing its notice of intent to 

determine whether the WAH contract is 

a SPDC, the CFTC cited a general 

conclusion in its ECM study ‘‘that 

certain market participants referred to 

ICE as a price discovery market for 

certain natural gas contracts.’’ 22 ICE 

stated that CFTC’s reason is ‘‘hard to 

quantify as the ECM report does not 

mention’’ this contract as a potential 

SPDC. ‘‘It is unknown which market 

participants made this statement in 

2007 or the contracts that were 

referenced.’’ 23 In response to the above 

comment, the Commission notes that it 

cited the ECM study’s general finding 

that some ICE natural gas contracts 

appear to be regarded as price discovery 

markets merely as an indicia that an 

investigation of certain ICE contracts 

may be warranted, and was not 

intended to serve as the sole basis for 

determining whether or not a particular 

contract meets the material price 

reference criterion. 

WGCEF 24, EI 25 and FIEG 26 all stated 

that the WAH contract does not satisfy 

the material price reference criterion. 

The commenters argued that other 

contracts (physical or financial) are not 

indexed based on the ICE WAH contract 

price, but rather are indexed based on 

the underlying cash price series against 

which the ICE WAH contract is settled. 

Thus, they contend that the underlying 

cash price series is the authentic 

reference price and not the ICE contract 

itself. The Commission believes that this 

interpretation of price reference is too 

limiting in that it only considers the 


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27Appendix A to the Part 36 rules. 

28The WAH contract is one-quarter the size of the 

NYMEX Henry Hub physically-delivered futures 

contract. 

final index value on which the contract 

is cash settled after trading ceases. 

Instead, the Commission believes that a 

cash-settled derivatives contract could 

meet the material price reference criteria 

if market participants ‘‘consult on a 

frequent and recurring basis’’ the 

derivatives contract when pricing 

forward, fixed-price commitments or 

other cash-settled derivatives that seek 

to ‘‘lock in’’ a fixed price for some future 

point in time to hedge against adverse 

price movements. 

As noted above, the Waha hub is a 

major trading center for natural gas in 

North America. Traders, including 

producers, keep abreast of the prices of 

the WAH contract when conducting 

cash deals. These traders look to a 

competitively determined price as an 

indication of expected values of natural 

gas at the Waha hub when entering into 

cash market transactions for natural gas, 

especially those trades that provide for 

physical delivery in the future. Traders 

use the ICE WAH contract to hedge cash 

market positions and transactions, 

which enhances the WAH contract’s 

price discovery utility. While the WAH 

contract’s settlement prices may not be 

the only factor influencing spot and 

forward transactions, natural gas traders 

consider the ICE price to be a crucial 

factor in conducting OTC transactions. 

Both EI and WGCEF stated that 

publication of price data in a package 

format is a weak justification for 

material price reference. These 

commenters argue that market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

so the fact that ICE sells the WAH prices 

as part of a broad package is not 

conclusive evidence that market 

participants are buying the ICE data sets 

because they find the WAH prices have 

substantial value to them. The 

Commission notes that Waha is a major 

natural gas trading point, and the WAH 

contract’s prices are well regarded in the 

industry as indicative of the value of 

natural gas at the Waha hub. 

Accordingly, the Commission believes 

that it is reasonable to conclude that 

market participants are purchasing the 

data packages that include the WAH 

contract’s prices in substantial part 

because the WAH contract prices have 

particular value to them. 

ii. Conclusion Regarding Material Price 

Reference 

Based on the above, the Commission 

finds that the WAH contract meets the 

material price reference criterion 

because cash market transactions are 

being priced on a frequent and recurring 

basis at a differential to the WAH 

contract’s price (direct evidence). 

Moreover, the ECM sells the WAH 

contract’s price data to market 

participants and it is reasonable to 

conclude that market participants are 

purchasing the data packages that 

include the WAH contract’s prices in 

substantial part because the WAH 

contract prices have particular value to 

them. Furthermore, such prices are 

consulted on a frequent and recurring 

basis by industry participants in pricing 

cash market transactions (indirect 

evidence). 

2. Price Linkage Criterion 

In its October 9, 2009, Federal 

Register notice, the Commission 

identified price linkage as a potential 

basis for a SPDC determination with 

respect to the WAH contract. In this 

regard, the final settlement of the WAH 

contract is based, in part, on the final 

settlement price of the NYMEX’s 

physically-delivered natural gas futures 

contract, where the NYMEX is 

registered with the Commission as a 

DCM. 

The Commission’s Guidance on 

Significant Price Discovery Contracts 27

notes that a ‘‘price-linked contract is a 

contract that relies on a contract traded 

on another trading facility to settle, 

value or otherwise offset the pricelinked contract.’’ Furthermore, the 

Guidance notes that, ‘‘[f]or a linked 

contract, the mere fact that a contract is 

linked to another contract will not be 

sufficient to support a determination 

that a contract performs a significant 

price discovery function. To assess 

whether such a determination is 

warranted, the Commission will 

examine the relationship between 

transaction prices of the linked contract 

and the prices of the referenced 

contract. The Commission believes that 

where material liquidity exists, prices 

for the linked contract would be 

observed to be substantially the same as 

or move substantially in conjunction 

with the prices of the referenced 

contract.’’ Furthermore, the Guidance 

proposes a threshold price relationship 

such that prices of the ECM linked 

contract will fall within a 2.5 percent 

price range for 95 percent of 

contemporaneously determined closing, 

settlement or other daily prices over the 

most recent quarter. Finally, the 

Commission also stated in the Guidance 

that it would consider a linked contract 

that has a trading volume equivalent to 

5 percent of the volume of trading in the 

contract to which it is linked to have 

sufficient volume potentially to be 

deemed a SPDC (‘‘minimum threshold’’). 

To assess whether the WAH contract 

meets the price linkage criterion, 

Commission staff obtained price data 

from ICE and performed the statistical 

tests cited above. Staff found that while 

the natural gas price at the Waha hub is 

determined, in part, by the final 

settlement price of the NYMEX 

physically-delivered natural gas futures 

contract (a DCM contract), the Waha 

hub price is not within 2.5 percent of 

the settlement price of the 

corresponding NYMEX Henry Hub 

natural gas futures contract on 95 

percent the days. Specifically, during 

the third quarter of 2009, 4.2 percent of 

the WAH natural gas prices derived 

from the ICE basis values were within 

2.5 percent of the daily settlement price 

of the NYMEX Henry Hub futures 

contract. In addition, staff finds that the 

WAH contract fails to meet the volume 

threshold requirement. In particular, the 

total trading volume in the NYMEX 

Natural Gas contract during the third 

quarter of 2009 was 14,022,963 

contracts, with 5 percent of that number 

being 701,148 contracts. The number of 

trades on the ICE centralized market in 

the WAH contract during the same 

period was 120,050 contracts 

(equivalent to 30,012 NYMEX contracts, 

given the size difference).28 Thus, 

centralized-market trades in the WAH 

contract amounted to less than the 

minimum threshold. 

Due to the specific criteria that a 

given ECM contract must meet to fulfill 

the price linkage criterion, the 

requirements, for all intents and 

purposes, exclude ECM contracts that 

are not near facsimiles of DCM 

contracts. That is, even though an ECM 

contract may specifically use a DCM 

contract’s settlement price to value a 

position, which is the case of the WAH 

contract, a substantive difference 

between the two price series would rule 

out the presence of price linkage. In this 

regard, an ECM contract that is priced 

and traded as if it is a functional 

equivalent of a DCM contract likely will 

have a price series that mirrors that of 

the corresponding DCM contract. In 

contrast, for contracts that are not lookalikes of DCM contracts, it is reasonable 

to expect that the two price series would 

be divergent. The Waha hub and the 

Henry Hub are located at opposite sides 

of the Gulf Coast natural gas market. 

While the Henry Hub and the Waha hub 

are both primarily supply centers, each 

center has its own unique physical 

characteristics that govern the flow of 

the gas, as well as a geographically 


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29CL 06. 

30CL 02. 

31CL 04. 

32CL 08. 

33As noted above, the material liquidity criterion 

speaks to the effect that transactions in the potential 

SPDC may have on trading in ‘‘agreements, 

contracts and transactions listed for trading on or 

subject to the rules of a designated contract market, 

a derivatives transaction execution facility, or an 

electronic trading facility operating in reliance on 

the exemption in section 2(h)(3) of the Act.’’ 

34 ICE does not differentiate between open 

interest created by a transaction executed on its 

trading platform versus that created by a transaction 

executed off its trading platform. 

35See Commission Rule 36.3(c)(2), 17 CFR 

36.3(c)(2). 

36By way of comparison, the number of contracts 

traded in the WAH contract is similar to that 

exhibited on a liquid futures market and is roughly 

equivalent to the volume of trading for the NYMEX 

Palladium futures contract during this period. 

37By way of comparison, open interest in the 

WAH contract is roughly equivalent to that in the 

ICE US Coffee ‘‘C’’ futures contract and the COMEX 

copper futures contract. 

38Staff 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. 

39Specifically, Commission staff econometrically 

estimated a vector autoregression (VAR) model 

using daily settlement prices. A vector 

autoregression model is an econometric model used 

to capture the evolution and the interdependencies 

between multiple time series, generalizing the 

univariate autoregression models. The estimated 

model displays strong diagnostic evidence of 

statistical adequacy. In particular, the model’s 

impulse response function was shocked with a onetime rise in WAH contract’s price. The simulation 

results suggest that, on average over the sample 

period, a one percent rise in the WAH contract’s 

price elicited a 0.8 percent increase in the NYMEX 

Henry Hub and Chicago prices, as well as 0.9 

percent increase in the TexOk contract and a 1 

percent increase in the Permian Basin contract. 

These multipliers of response emerge with 

noticeable statistical strength or significance. Based 

on such long run sample patterns, if the WAH 

contract’s price rises by 10 percent, then the prices 

of NYMEX Henry Hub natural gas futures contract 

and the ICE Chicago Financial Basis contract would 

each rise by 8 percent. In addition, the price of 

ICE’s TexOk Financial Basis contract would rise by 

9 percent, and the price of the ICE’s Permain 

Financial Basis would rise by 10 percent. 

unique customer base with a different 

demand schedule. These differences 

contribute to the divergence between 

the two price series and, as discussed 

below, increase the likelihood that the 

‘‘basis’’ contract is used for material 

price reference. 

i. Federal Register Comments 

EI 29 stated that the WAH and NYMEX 

natural gas contracts are not 

economically equivalent and that the 

WAH contract’s volume is too low to 

affect the NYMEX natural gas futures 

contract. WGCEF 30 stated that the WAH 

contract’s price is determined, in part, 

by the final settlement price of the 

NYMEX Henry Hub futures contract. 

However, WGCEF goes on to state that 

the WAH contract ‘‘(a) is not 

substantially the same as the NYMEX 

[natural gas futures contract] * * * nor 

(b) does it move substantially in 

conjunction’’ with the NYMEX natural 

gas futures contract. ICE 31 pronounced 

that the WAH contract’s trading volume 

is too low to affect the price discovery 

process for the NYMEX natural gas 

futures contract. In addition, ICE stated 

that the WAH contract simply reflects a 

price differential between Waha hub 

and the Henry Hub; ‘‘there is no price 

linkage as contemplated by Congress or 

the CFTC in its rulemaking.’’ FIEG 32

acknowledged that the WAH contract is 

a locational spread that is based in part 

on the NYMEX natural gas futures price, 

but also questioned the significance of 

this fact relative to the price linkage 

criterion since the key component of the 

spread is the price at Waha hub and not 

the NYMEX physically-delivered 

natural gas futures price. 

ii. Conclusion Regarding the Price 

Linkage Criterion 

Based on the above, the Commission 

finds that the WAH contract does not 

meet the price linkage criterion because 

it fails the price relationship and 

volume tests provided for in the 

Commission’s Guidance. 

3. Material Liquidity Criterion 

To assess whether the WAH contract 

meets the material liquidity criterion, 

the Commission first examined volume 

and open interest data provided to it by 

ICE as a general measurement of the 

WAH contract’s size and potential 

importance, and second performed a 

statistical analysis to measure the effect 

that changes to WAH prices potentially 

may have on prices for the NYMEX 

Henry Hub Natural Gas (a DCM 

contract), the ICE Chicago Financial 

Basis contract (an ECM contract), the 

ICE TexOK Financial Basis contract (an 

ECM contract) and the ICE Permian 

Financial Basis contract (an ECM 

contract).33

The Commission’s Guidance 

(Appendix A to Part 36) notes that 

‘‘[t]raditionally, objective measures of 

trading such as volume or open interest 

have been used as measures of 

liquidity.’’ In this regard, the 

Commission in its October 9, 2009, 

Federal Register notice referred to 

second quarter 2009 trading statistics 

that ICE had submitted for its WAH 

contract. Based upon on a required 

quarterly filing made by ICE on July 27, 

2009, the total number of WAH trades 

executed on ICE’s electronic trading 

platform was 1,165 in the second 

quarter of 2009, resulting in a daily 

average of 18 trades. During the same 

period, the WAH contract had a total 

trading volume on ICE’s electronic 

trading platform of 100,490 contracts 

and an average daily trading volume of 

1,570 contracts. Moreover, the open 

interest as of June 30, 2009, was 96,371 

contracts, which includes 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.34

Subsequent to the October 9, 2009, 

Federal Register notice, ICE submitted 

another quarterly notification filed on 

November 13, 2009,35 with updated 

trading statistics. Specifically, with 

respect to its WAH contract, 1,252 

separate trades occurred on its 

electronic platform in the third quarter 

of 2009, resulting in a daily average of 

19 trades. During the same period, the 

WAH contract had a total trading 

volume on its electronic platform of 

120,050 contracts (which was an 

average of 1,819 contracts per day).36 As 

of September 30, 2009, open interest in 

the WAH contract was 114,238 

contracts.37 Reported open interest 

included positions resulting from trades 

that were executed on ICE’s electronic 

platform, as well as trades that were 

executed off of ICE’s electronic platform 

and brought to ICE for clearing. 

In the Guidance, the Commission 

stated that material liquidity can be 

identified by the impact liquidity 

exhibits through observed prices. Thus, 

to make a determination whether the 

WAH contract has such material impact, 

the Commission reviewed the relevant 

trading statistics (noted above). In this 

regard, the average number of trades per 

day in the second and third quarters of 

2009 were well above the minimum 

reporting level (5 trades per day). 

Moreover, trading activity in the WAH 

contract, as characterized by total 

quarterly volume, indicates that the 

WAH contract experiences trading 

activity that is greater than in thinlytraded contracts.38 Thus, it is reasonable 

to infer that the WAH contract could 

have a material effect on other ECM 

contracts or on DCM contracts. 

To measure the effect that the WAH 

contract potentially could have on a 

DCM contract, or on another ECM 

contract, Commission staff performed a 

statistical analysis 39 using daily 

settlement prices (between January 2, 

2008, and September 30, 2009) for the 

ICE WAH contract, as well as for the 

NYMEX Henry Hub natural gas contract 


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40Natural gas prices at the Chicago, Permian, and 

TexOk hubs were obtained by adding the daily 

settlement prices of ICE’s Chicago Financial Basis, 

Permian Basin Financial Basis and TexOk Financial 

Basis contracts, respectively, to the 

contemporaneous daily settlement prices of the 

NYMEX Henry Hub physically-delivered natural 

gas futures contract. 

41CL 02. 

42CL 08. 

43Supplemental data supplied by the ICE 

confirmed that block trades in the third quarter of 

2009 were in addition to the trades that were 

conducted on the electronic platform; block trades 

comprised 44.3 percent of all transactions in the 

WAH contract. 

44See 73 FR 75888, 75893 (Dec. 12, 2008). 

45 44 U.S.C. 3507(d). 

(a DCM contract) the ICE Chicago 

Financial Basis contract (an ECM 

contract), ICE TexOk Financial Basis 

contract (an ECM contract) and ICE 

Permian Financial Basis contract (an 

ECM contract).40 The simulation results 

suggest that, on average over the sample 

period, a one percent rise in the WAH 

contract’s price elicited a 0.8 percent 

increase in ICE Chicago and the NYMEX 

Henry Hub, a 0.9 percent increase in ICE 

TexOK and an equivalent increase in 

ICE Permian prices. 

i. Federal Register Comments 

As noted above, comments were 

received from seven individuals and 

organizations, with five comments being 

directly applicable to the SPDC 

determination of the ICE WAH contract. 

WGCEF, EI, FIEG and ICE generally 

agreed that the WAH contract does not 

meet the material liquidity criterion. 

WGCEF 41 stated that the WAH 

contract does not materially affect other 

contracts that are listed for trading on 

DCMs or ECMs, as well as other overthe-counter contracts. Instead, the WAH 

contract is influenced by the underlying 

Waha cash price index and the final 

settlement price of the NYMEX Henry 

Hub natural gas futures contract, not 

vice versa. FIEG 42 stated that the WAH 

contract cannot have a material effect on 

NYMEX contract because the WAH 

contract trades on a differential and 

represents ‘‘one leg (and not the relevant 

leg) of the locational spread.’’ The 

Commission’s statistical analysis shows 

that changes in the ICE WAH contract’s 

price significantly influences the prices 

of other contracts that are traded on 

DCMs and ECMs. 

ICE opined that the Commission 

‘‘seems to have adopted a five trade-perday test to determine whether a contract 

is materially liquid. It is worth noting 

that ICE originally suggested that the 

CFTC use a five trades-per-day 

threshold as the basis for an ECM to 

report trade data to the CFTC.’’ In this 

regard, 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’’ 

rather than solely relying upon an ECM 

on its own to identify any such potential 

SPDCs to the Commission. Thus, any 

contract that meets this threshold may 

be subject to scrutiny as a potential 

SPDC. As noted above, the Commission 

is basing a finding of material liquidity 

for the ICE WAH contract, in part, on 

the fact that there have been nearly 20 

trades per day on average in the WAH 

contract during the second and third 

quarters of 2009, which is almost 

quadruple the five trades-per-day that is 

cited in the ICE comment. In addition, 

the Commission notes that the number 

of contracts per transaction in the WAH 

contract is high (approximately 96 

contracts per transaction) and thus, as 

noted, trading volume (measured in 

contract units) is substantial. The WAH 

contract also has significant open 

interest. 

ICE implied 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 listed months of each 

contract’’ as well as in strips of contract 

months, and a ‘‘more appropriate 

method of determining liquidity is to 

examine the activity in a single traded 

month or strip of a given contract.’’ ICE 

stated that only about 25 to 40 percent 

of the trades occurred in the single most 

liquid, usually prompt, month of the 

contract. 

It is the Commission’s opinion that 

liquidity, as it pertains to the WAH 

contract, is typically a function of 

trading activity in particular lead 

months and, given sufficient liquidity in 

such months, the WAH contract itself 

would be considered liquid. ICE’s 

analysis of its own trade data confirms 

this to be the case for the WAH contract, 

and thus, the Commission believes that 

it applied the statistical data cited above 

in an appropriate manner for gauging 

material liquidity. 

In addition, EI and ICE stated that the 

trades-per-day statistics that it provided 

to the Commission in its quarterly filing 

and which are cited above includes 

2(h)(1) transactions, which were not 

completed on the electronic trading 

platform and should not be considered 

in the SPDC determination process. 

Commission staff asked ICE to review 

the data it sent in its quarterly filings. 

In response, ICE confirmed that the 

volume data it provided and which the 

Commission cited in its October 9, 2009, 

Federal Register notice, as well as the 

additional volume information it cites 

above, includes only transaction data 

executed on ICE’s electronic trading 

platform. The Commission 

acknowledges that the open interest 

information it cites above includes 

transactions made off the ICE 

platform.43 However, once open interest 

is created, there is no way for ICE to 

differentiate between ‘‘on-exchange’’ 

versus ‘‘off-exchange’’ created positions, 

and all such positions are fungible with 

one another and may be offset in any 

way agreeable to the position holder 

regardless of how the position was 

initially created. 

ii. Conclusion Regarding Material 

Liquidity 

Based on the above, the Commission 

concludes that the WAH contract meets 

the material liquidity criterion in that 

there is sufficient trading activity in the 

WAH contract to have a material effect 

on ‘‘other agreements, contracts or 

transactions listed for trading on or 

subject to the rules of a designated 

contract market * * * or an electronic 

trading facility operating in reliance on 

the exemption in section 2(h)(3) of the 

Act’’ (that is, an ECM). 

4. Overall Conclusion 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the WAH contract 

performs a significant price discovery 

function under two of the four criteria 

established in section 2(h)(7) of the 

CEA. Although the Commission has 

determined that the WAH contract does 

not meet the price linkage criterion at 

this time, the Commission has 

concluded that the WAH contract does 

meet both the material liquidity and 

material price reference criteria. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

WAH contract is a SPDC. 

Issuance of this Order signals the 

immediate effectiveness of the 

Commission’s authorities with respect 

to ICE as a registered entity in 

connection with its WAH contract,44

and triggers the obligations, 

requirements—both procedural and 

substantive—and timetables prescribed 

in Commission rule 36.3(c)(4) for ECMs. 

V. Related Matters 

a. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 45 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. 


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46 7 U.S.C. 19(a). 

47 5 U.S.C. 601 et seq. 

48 66 FR 42256, 42268 (Aug. 10, 2001). 

49 7 U.S.C. 1a(29). 

50Because 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). 

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 46 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. The Commission has considered 

the costs and benefits in light of the 

specific provisions of section 15(a) of 

the Act and has concluded that the 

Order, required by Congress to 

strengthen Federal oversight of exempt 

commercial markets and to prevent 

market manipulation, is necessary and 

appropriate to accomplish the purposes 

of section 2(h)(7) 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 authorizes 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’’) 47 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.48 Accordingly, the Chairman, on 

behalf of the Commission, hereby 

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

this Order, 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. Order 

a. Order Relating to the ICE Waha 

Financial Basis 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 Waha 

Financial Basis contract, traded on the 

IntercontinentalExchange, Inc., satisfies 

the statutory material liquidity and 

material price reference criteria for 

significant price discovery contracts. 

Consistent with this determination, and 

effective immediately, the 

IntercontinentalExchange, Inc., must 

comply with, with respect to the Waha 

Financial Basis 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 49

with respect to the Waha Financial 

Basis contract and is subject to all 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., 

commence with the issuance of this 

Order.50

Issued in Washington, DC, on April 28, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–10324 Filed 5–4–10; 8:45 am] 

BILLING CODE P 

CORPORATION FOR NATIONAL AND 

COMMUNITY SERVICE 

Sunshine Act Notice 

The Board of Directors of the 

Corporation for National and 

Community Service gives notice of the 

following meeting: 

DATE AND TIME: Wednesday, May 12, 

2010, 10:30 a.m.–12 p.m. 

PLACE: Corporation for National and 

Community Service, 1201 New York 

Avenue, NW., Suite 8312, Washington, 

DC 20525 (Please go to 10th floor 

reception area for escort). 

CALL-IN INFORMATION: This meeting is 

available to the public through the 

following toll-free call-in number: 888– 

790–3168 conference call access code 

number 4567906. Any interested 

member of the public may call this 

number and listen to the meeting. 

Callers can expect to incur charges for 

calls they initiate over wireless lines, 

and the Corporation will not refund any 

incurred charges. Callers will incur no 

charge for calls they initiate over landline connections to the toll-free 

telephone number. Replays are 

generally available one hour after a call 

ends. The toll-free phone number for the 

replay is 800–294–4341. The end replay 

date: June 12, 10:59 PM (CT). 

STATUS: Open. 

MATTERS TO BE CONSIDERED: 

10:30–11:15 a.m. 

I. Chair’s Opening Comments 


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