[Federal Register Volume 74, Number 76 (Wednesday, April 22, 2009)]
[Proposed Rules]
[Pages 18304-18329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9224]


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FEDERAL TRADE COMMISSION

16 CFR Part 317

[Project No. P082900]
RIN 3084-AB12


Prohibitions on Market Manipulation in Subtitle B of Title VIII 
of The Energy Independence and Security Act of 2007

AGENCY: Federal Trade Commission.

ACTION: Revised notice of proposed rulemaking; request for public 
comment.

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SUMMARY: Pursuant to Section 811 of Subtitle B of Title VIII of The 
Energy Independence and Security Act of 2007 (``EISA''),\1\ the Federal 
Trade Commission (``Commission'' or ``FTC'') is issuing a Revised 
Notice of Proposed Rulemaking (``RNPRM''). The revised proposed Rule in 
this RNPRM would prohibit any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, from knowingly engaging in any act, 
practice, or course of business--including the making of any untrue 
statement of material fact--that operates or would operate as a fraud 
or deceit upon any person, or intentionally failing to state a material 
fact that under the circumstances renders a statement made by such 
person misleading, provided that such omission distorts or tends to 
distort market conditions for any such product. Violations of the 
revised proposed Rule, if such Rule is adopted, would require proof by 
a preponderance of the evidence. Anyone violating an FTC rule 
promulgated under Section 811 of EISA, such as this revised proposed 
Rule would be if adopted, may face civil penalties of up to $1 million 
per violation per day, in addition to any relief available to the 
Commission under the Federal Trade Commission Act (``FTC Act'').\2\ The 
Commission invites written comments on issues raised by the revised 
proposed Rule and seeks answers to the specific questions set forth in 
Section IV.I. of this RNPRM.
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    \1\ Section 811 is part of Subtitle B of Title VIII of EISA, 
which has been codified at 42 U.S.C. 17301-17305.
    \2\ 15 U.S.C. 41-58.

DATES: Written comments must be received by May 20, 2009. The 
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Commission does not contemplate any extensions of this comment period.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Market 
Manipulation Rulemaking, P082900'' to facilitate the organization of 
comments. Please note that your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including on the publicly accessible FTC website, at (http://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential,'' as provided in Section 6(f) 
of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2).

[[Page 18305]]

Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 
4.9(c).\3\
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    \3\ See also FTC Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).
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    Because paper mail in the Washington area, and specifically to the 
FTC, is subject to delay due to heightened security screening, please 
consider submitting your comments in electronic form. Comments filed in 
electronic form should be submitted by using the following weblink: 
(https://secure.commentworks.com/ftc-marketmanipulationRNPRM), (and 
following the instructions on the web-based form). To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at the weblink (https://secure.commentworks.com/ftc-marketmanipulationRNPRM). If this RNPRM appears at (http://www.regulations.gov/search/index.jsp), you may also file an electronic 
comment through that website. The Commission will consider all comments 
that regulations.gov forwards to it. You may also visit the FTC website 
at (http://www.ftc.gov/opa/2009/04/rnprm.shtm) to read the RNPRM and 
the news release describing it.
    A comment filed in paper form should include the ``Market 
Manipulation Rulemaking, P082900'' reference both in the text and on 
the envelope, and should be mailed to the following address: Federal 
Trade Commission, Market Manipulation Rulemaking, P.O. Box 2846, 
Fairfax, VA 22031-0846. This address does not accept courier or 
overnight deliveries. Courier or overnight deliveries should be 
delivered to: Federal Trade Commission/Office of the Secretary, Room H-
135 (Annex G), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).

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

SUPPLEMENTARY INFORMATION:

I. Background

    EISA became law on December 19, 2007.\4\ Subtitle B of Title VIII 
of EISA targets market manipulation in connection with the purchase or 
sale of crude oil, gasoline, or petroleum distillates at wholesale, and 
the reporting of false or misleading information related to the 
wholesale price of those products. Specifically, Section 811 prohibits 
``any person'' from ``directly or indirectly'': (1) using or employing 
``any manipulative or deceptive device or contrivance,'' (2) ``in 
connection with the purchase or sale of crude oil gasoline or petroleum 
distillates at wholesale,'' (3) that violates a rule or regulation that 
the FTC ``may prescribe as necessary or appropriate in the public 
interest or for the protection of United States citizens.''\5\
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    \4\ 42 U.S.C. 17001-17386.
    \5\ 42 U.S.C. 17301.
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    Section 812 prohibits ``any person'' from reporting information 
that is ``required by law to be reported''--and that is ``related to 
the wholesale price of crude oil gasoline or petroleum distillates''--
to a federal department or agency if the person: (1) ``knew, or 
reasonably should have known, [that] the information [was] false or 
misleading;'' and (2) intended such false or misleading information 
``to affect data compiled by the department or agency for statistical 
or analytical purposes with respect to the market for crude oil, 
gasoline, or petroleum distillates.''\6\
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    \6\ 42 U.S.C. 17302.
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    Subtitle B also contains three additional sections that address, 
respectively, enforcement of the Subtitle (Section 813),\7\ penalties 
for violations of Section 812 or any FTC rule published pursuant to 
Section 811 (Section 814),\8\ and the interplay between Subtitle B and 
existing laws (Section 815).\9\
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    \7\ Section 813(a) provides that Subtitle B shall be enforced by 
the FTC ``in the same manner, by the same means, and with the same 
jurisdiction as though all applicable terms of the [FTC] Act (15 
U.S.C. 41 et seq.) were incorporated into and made a part of 
[Subtitle B].'' Section 813(b) provides that a violation of any 
provision of Subtitle B ``shall be treated as an unfair or deceptive 
act or practice proscribed under a rule issued under [S]ection 
18(a)(1)(B) of the [FTC] Act (15 U.S.C. 57a(a)(1)(B)).'' 42 U.S.C. 
17303.
    \8\ Section 814(a) of Subtitle B provides that--``[i]n addition 
to any penalty applicable'' under the FTC Act--``any supplier that 
violates [S]ection 811 or 812 shall be punishable by a civil penalty 
of not more than $1,000,000.'' Further, Section 814(c) provides that 
``each day of a continuing violation shall be considered a separate 
violation.'' 42 U.S.C. 17304.
    \9\ Section 815(a) provides that nothing in Subtitle B ``limits 
or affects'' Commission authority ``to bring an enforcement action 
or take any other measure'' under the FTC Act or ``any other 
provision of law.'' Section 815(b) provides that ``[n]othing in 
[Subtitle B] shall be construed to modify, impair, or supersede the 
operation'' of: (1) any of the antitrust laws (as defined in Section 
1(a) of the Clayton Act, 15 U.S.C. 12(a)), or (2) Section 5 of the 
FTC Act ``to the extent that . . . [S]ection 5 applies to unfair 
methods of competition.'' Section 815(c) provides that nothing in 
Subtitle B ``preempts any State law.'' 42 U.S.C. 17305.
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    The revised proposed Rule in this RNPRM retains the anti-fraud 
approach of the initial proposed Rule published by the Commission in a 
Notice of Proposed Rulemaking (``NPRM'') on August 19, 2008.\10\ The 
revised proposed Rule would achieve the anti-manipulation objectives of 
Section 811 by prohibiting any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, from (a) knowingly engaging in any 
act, practice, or course of business--including the making of any 
untrue statement of material fact--that operates or would operate as a 
fraud or deceit upon any person, or (b) intentionally failing to state 
a material fact that under the circumstances renders a statement made 
by such person misleading, provided that such omission distorts or 
tends to distort market conditions for any such product.\11\
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    \10\ FTC, Prohibitions On Market Manipulation and False 
Information in Subtitle B of Title VIII of The Energy Independence 
and Security Act of 2007, 73 FR 48317 (Aug. 19, 2008). The NPRM was 
preceded by the publication for comment of an Advance Notice of 
Proposed Rulemaking (``ANPR''). FTC, Prohibitions On Market 
Manipulation and False Information in Subtitle B of The Energy 
Independence and Security Act of 2007, 73 FR 25614 (May 7, 2008).
    \11\ As the Commission stated in the ANPR and the NPRM, the 
phrase ``crude oil gasoline or petroleum distillates'' is used 
without commas in Section 811 (as well as in the first clause of 
Section 812), while the phrase is used with commas in Section 
812(3): ``crude oil, gasoline, or petroleum distillates.'' The 
absence of commas is presumably a non-substantive, typographical 
error; therefore, the Commission reads all parts of both sections to 
cover all three types of products: crude oil, gasoline, and 
petroleum distillates. See 73 FR at 25621 n.59; 73 FR at 48320 n.40.

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[[Page 18306]]

    The Commission believes additional public comment on the revised 
proposed Rule will assist in evaluating the desirability and contours 
of any final rule. The Commission requests that comments focus on 
changes between the initially proposed Rule and the revised proposed 
Rule. The Commission also invites written responses to, and comments 
on, the questions and alternative rule language posed in Section IV.I. 
Because the public has already had the opportunity to comment on many 
of the concepts contained in this revised proposed Rule--through both 
written comments and workshop presentations and participation--the 
Commission believes that a 30-day comment period is appropriate, and 
requests for extension of the comment period are unlikely to be 
granted.

II. The Rulemaking Proceeding

    The rulemaking proceeding began with the publication of an ANPR on 
May 7, 2008.\12\ In the ANPR, the Commission solicited comments on 
whether it should publish a rule under Section 811, and, if so, the 
appropriate scope and content of such a rule.\13\ In response to the 
ANPR, the Commission received 155 comments from interested parties.\14\ 
Commenters expressed differing views regarding the desirability of, and 
appropriate legal basis for, any such rule. Commenters also proposed a 
variety of models upon which to base a market manipulation rule, 
including those used by other federal agencies, such as the Securities 
and Exchange Commission (``SEC''),\15\ the Federal Energy Regulatory 
Commission (``FERC''),\16\ and the Commodity Futures Trading Commission 
(``CFTC''),\17\ pursuant to each agency's respective market 
manipulation authority.
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    \12\ 73 FR 25614. Rulemaking documents can be found at (http://www.ftc.gov/ftc/oilgas/rules.htm).
    \13\ 73 FR at 25620-24. The comment period for the ANPR closed 
on June 23, 2008, after the Commission granted an extension 
requested by a major industry trade association. Letter from the 
American Petroleum Institute to FTC Secretary Donald S. Clark, (May 
19, 2008), available at (http://www.ftc.gov/os/comments/marketmanipulation/index.shtm).
    \14\ Attachment C contains a list of commenters who submitted 
comments on the ANPR, together with the abbreviations used to 
identify each commenter referenced in this RNPRM. Electronic 
versions of the comments can be found at (http://www.ftc.gov/os/comments/marketmanipulation/index.shtm).
    \15\ See Securities Exchange Act of 1934 (``SEA'') 10(b), 15 
U.S.C. 78j(b); 17 CFR 240.10b-5 (``Rule 10b-5'').
    \16\ See Natural Gas Act 4A, 15 U.S.C. 717c-1; Federal Power Act 
222, 16 U.S.C. 791a; Prohibition of Natural Gas Market Manipulation, 
18 CFR 1c.1; Prohibition of Electric Energy Market Manipulation, 18 
CFR 1c.2.
    \17\ See Commodity Exchange Act (``CEA'') 9(a)(2), 7 U.S.C. 
13(a)(2).
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    After reviewing the ANPR comments, on August 19, 2008, the 
Commission published an NPRM, setting forth the text of a proposed Rule 
and inviting written comments on issues raised by the proposed 
Rule.\18\ The NPRM described the basis for and scope of the proposed 
Rule; definitions of terms in the Rule; conduct prohibited by the Rule; 
and the elements of a cause of action under the Rule. The NPRM also set 
forth questions designed to elicit further information from interested 
parties. In response to a petition from a major trade association,\19\ 
the Commission extended the deadline for submission of comments on the 
NPRM from September 18, 2008 to October 17, 2008.\20\
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    \18\ 73 FR 48317.
    \19\ Letter from the American Petroleum Institute to FTC 
Secretary Donald S. Clark, (Sept. 5, 2008), available at (http://www.ftc.gov/os/comments/marketmanipulation2/538416-00006.pdf).
    \20\ FTC, Prohibitions On Market Manipulation and False 
Information in Subtitle B of Title VIII of The Energy Independence 
and Security Act of 2007, 73 FR 53393 (Sept. 16, 2008).
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    In response to the NPRM, the Commission received 34 comments from 
interested parties, including consumers, a consumer advocacy group, 
academics, a federal agency, state government agencies, a Member of 
Congress, industry members, and trade and bar associations.\21\ On 
November 6, 2008, Commission staff held a one-day public workshop on 
the proposed Rule.\22\ Commenters and workshop participants provided 
valuable feedback on several key issues relating to the proposed Rule, 
particularly regarding the application of a rule based on SEC Rule 10b-
5 and the relevance of legal precedent under securities law to the 
petroleum industry. An overview of the major issues reflected in the 
comments and at the workshop follows.
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    \21\ Attachment A contains a list of commenters who responded to 
the NPRM, together with the abbreviations used to identify each 
commenter. In calculating the number of comments submitted in 
response to the NPRM, the Commission treated the multiple filings 
from Argus, CFA, CFDR, ISDA, and NPRA as a single comment for each 
commenter.
    \22\ Attachment B contains a list of participants in the 
workshop, together with the abbreviations used to identify each 
workshop participant. The discussion topics for the workshop 
included the use of SEC Rule 10b-5 as a model for an FTC market 
manipulation rule; the proper scienter standard for a rule; the 
appropriate reach of a rule; the type of conduct that would violate 
a rule; and the desirability of including market or price effects as 
an element of a rule violation. Information relating to the 
workshop, including a program, transcript, and archived webcast, can 
be found at (http://www.ftc.gov/bcp/workshops/marketmanipulation/index.shtml).
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    Many commenters expressed general support for an anti-fraud rule, 
noting that fraud provides a ``good demarcation'' for a market 
manipulation rule and would provide the necessary guidance to market 
participants.\23\ Although a few commenters affirmatively supported the 
Commission's proposed Rule, as articulated in the NPRM,\24\ the 
majority of commenters raised concerns about the scope and application 
of the proposed Rule. Many commenters thought that the proposed Rule, 
as drafted, created a substantial risk of reaching and chilling 
legitimate conduct undertaken in the ordinary course of business.\25\
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    \23\ CFDR (Mills), Tr. at 38; see, e.g., API at 8-9 
(``[S]upport[ing] the Commission's initial determination that the 
scope of the rule should be `narrowly tailored to address fraudulent 
practices.''' (quoting 73 FR at 48320)); NPRA at 2 (stating that a 
rule should target fraudulent and deceptive practices); PMAA 
(Bassman), Tr. at 46-47 (explaining that, in general, fraud is an 
appropriate basis for a Section 811 rule); ATAA at 11 (expressing 
support for the Commission's decision to propose an anti-fraud 
rule); see also ISDA (Velie), Tr. at 40 (expressing support for an 
anti-fraud rule if it is coupled with specific intent); ABA Energy 
(McDonald), Tr. at 246 (urging the Commission to focus a rule on 
deceptive conduct).
    \24\ See, e.g., MS AG at 3 (``[T]he scope of the proposed Rule 
is well tailored to ensure that it will address . . . concerns 
without deterring desirable market practices that could ultimately 
benefit consumers.''); PMAA at 3 (``The proposed rule allows 
regulated entities to understand both its intent and how it will be 
applied . . . .''); CA AG at 2 (expressing support for the FTC's 
proposed Rule).
    \25\ See, e.g., Flint Hills at 3 (``[T]he breadth of the 
proposed rule would create a significant amount of uncertainty as to 
what conduct may be captured by the Rule, and could apply to 
completely legitimate conduct . . . .''); API at 9 (arguing that the 
proposed Rule ``would create substantial legal uncertainty for 
market participants'' that will ``deter[] firms from engaging in 
legitimate activity''); Sutherland at 2 (stating that the proposed 
Rule ``is considerably more intrusive of legitimate business 
behavior than is necessary''); Plains at 3 (``Given the general 
nature of the proposed rule and the uncertainties that will exist 
with respect to its scope and applicability, the imposition of 
liability without any finding of an effect on the market . . . will 
restrict legitimate market activity . . . .''); NPRA at 3 (stating 
that ``the proposed Rule falls far short of the Commission's goal'' 
of prohibiting ```manipulative and deceptive conduct without 
discouraging pro-competitive or otherwise desirable market 
practices''' (quoting 73 FR at 48323)) (emphasis added by 
commenter).
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    To remedy perceived shortcomings in the proposed Rule, some 
commenters suggested modifications, including: (1) rejecting SEC Rule 
10b-5 as a model for an FTC rule,\26\ and (2) making other

[[Page 18307]]

changes in the text of the proposed Rule.\27\ Commenters also offered 
recommendations regarding the elements of proof the Commission should 
require in order to establish a rule violation. Specifically, the 
commenters discussed: (1) whether a showing of recklessness should be 
sufficient to establish the requisite level of scienter required by a 
rule;\28\ (2) whether a showing of price effects should be required in 
order to prove a rule violation;\29\ and (3) whether prohibiting 
statements that are misleading because they omit material facts is 
appropriate for a rule that applies to wholesale petroleum markets.\30\
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    \26\ See, e.g., Sutherland at 4 (``We believe that the 
Commission is mistaken in proposing to adopt the [SEC Rule] 10b-5 
anti-fraud model . . . .''); API at 11 (arguing against borrowing, 
without modification, the language and precedent of Rule 10b-5); 
ISDA at 6 (stating that ``[s]ecurities precedent does not provide a 
helpful framework'' for creating a Section 811 rule); NPRA at 2 
(stating that an SEC-based rule is ``not an appropriate or workable 
model for an FTC market manipulation rule that applies to wholesale 
petroleum markets''); Plains at 2 (``The types of protective rules 
and doctrines that may be appropriate for the securities markets . . 
. cannot simply be applied without modification to the petroleum 
markets.'').
    \27\ See, e.g., NPRA at 17, 31 (recommending modifications to 
the proposed Rule's text and also suggesting alternative rule 
language); Navajo Nation at 7-9 (urging that the Commission define 
the term ``manipulative'' in the proposed Rule); API at 11 
(requesting that the Commission modify the text of the proposed Rule 
to account for differences between wholesale petroleum and 
securities markets).
    \28\ Many commenters urged the Commission to require a showing 
of specific intent instead of recklessness to prove a violation of 
an FTC rule. See, e.g., CFDR at 4 (recommending that an FTC rule 
require a ``[specific] intent to cause a false, fictitious and 
artificial impact on market prices or market activity''); ISDA at 3-
4 (urging the Commission to require proof of specific intent rather 
than recklessness); NPRA at 18 (stating that a recklessness standard 
is not appropriate for wholesale petroleum markets); Sutherland at 5 
(encouraging the Commission to require specific intent rather than 
recklessness); Muris at 11 (recommending that the Commission require 
proof of specific intent); see also Argus at 2 (stating that ``a 
specific intent requirement would encourage those who already 
provide market data to index publishers to continue to do so''); API 
at 16 (stating that the proposed Rule's recklessness standard ``is 
not sufficient . . . to `ensure that the proposed Rule does not 
chill competitive behavior''' (citing 73 FR at 48328)). But see, 
e.g., SIGMA at 2 (stating that the association is content with the 
scienter requirement that the FTC has adopted in its proposed Rule); 
MS AG at 3 (stating that ``both intentional and reckless conduct 
should be covered by the scienter requirement''); CAPP at 1 
(commending the Commission's proposed scienter requirement, which is 
designed to avoid chilling legitimate business behavior); ATAA at 12 
(expressing support for the FTC's proposed scienter requirement); 
PMAA at 3-4 (stating that the Commission's proposed elements of 
proof provide ``needed clarity''); CA AG at 2-3 (supporting the 
scienter standard proposed in the NPRM).
    \29\ Many commenters supported the showing of price effects as 
an element of a cause of action under an FTC market manipulation 
rule. See, e.g., Van Susteren at 2 (``The lack of a requirement of a 
showing of price effects to establish culpability leaves the rule 
overbroad and risks inconsistent or unwarranted enforcement efforts 
by the Commission.''); ISDA at 3-4 (asking that the Commission 
require proof of price effects); Muris at 2 (encouraging the 
Commission to adopt an effects requirement); see also Plains at 3 
(urging the Commission to make clear that only conduct that has a 
``manipulative effect on the relevant market'' will be actionable); 
API at 34 (recommending that the Commission require ``proof that a 
party's deceptive or fraudulent conduct caused market conditions to 
deviate materially from the conditions that would have existed but 
for that conduct''); Sutherland at 6 (urging the FTC to ``require 
that market manipulation actually impact the market''). But see, 
e.g., MS AG at 3 (asserting ``that proof of price effects should not 
be required to establish a violation''); ATAA at 12 (supporting the 
FTC's decision not to require proof of price effects); IPMA at 4 
(``[A]gree[ing] that the proposed Rule should not require proof of 
an identifiable price effect.''); CA AG at 3 (expressing support for 
the Commission's decision not to include an effects requirement).
    \30\ Several commenters argued that, although the proposed 
Rule's omissions language may be appropriate in securities markets, 
differences exist between securities and wholesale petroleum markets 
that make such language inapplicable to the latter. See, e.g., API 
at 25 (stating that unlike wholesale petroleum markets, securities 
markets are ``are governed by detailed disclosure obligations 
designed to protect unsophisticated investors''); Muris at 2 (urging 
the FTC to ``avoid importing broad disclosure requirements from 
highly regulated markets that simply have no place in wholesale 
petroleum markets''); NPRA at 4 (arguing that the full disclosure 
rationale underlying SEC Rule 10b-5 does not fit wholesale petroleum 
markets); Plains at 3 (stating that in the crude oil markets, unlike 
securities markets, ``there is no presumption that one market 
participant owes any duties to its counterparties that would require 
disclosure of any information'').
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    Commenters also presented varying views regarding the proper reach 
of an FTC market manipulation rule.\31\ A few commenters believed that 
the proposed Rule should reach conduct other than fraud, and these 
commenters suggested that the Commission should modify the focus of the 
proposed Rule\32\ or amend it to reach specific types of conduct.\33\ 
Most argued that an FTC market manipulation rule should not reach 
activity in futures markets.\34\ Several offered views as to whether an 
FTC rule should reach pipelines\35\ or renewable fuels, including 
ethanol.\36\ The Commission has considered these comments and, where 
appropriate, has revised the initial proposed Rule to address these 
concerns.
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    \31\ See, e.g., Boxer at 1 (advocating for a rule to reach ``oil 
traded on the [NYMEX] and ICE exchanges''); API at 22-23 (``[T]he 
Commission should, at a minimum, provide a safe harbor for 
statements or omissions that are not made in connection with 
`reporting . . . to government agencies, to third-party reporting 
services, and to the public through corporate announcements,' at 
least absent concrete evidence that such statements or omissions 
were part of a broader scheme to manipulate a market.'' (citing 73 
FR at 48326)); Platts at 8 (asking that the Commission adopt a safe 
harbor to alleviate concerns that the Commission could capture 
inadvertent errors under an FTC rule); see also Argus at 3 (``The 
FTC should also refrain from mandating any particular methodological 
approach for the assessment of spot markets in petroleum.'').
    \32\ See, e.g., Pirrong at 2 (asserting that the proposed Rule's 
focus on fraud and deceit is misguided and contending that market 
power is the biggest threat to efficiently functioning petroleum 
markets); CFA2 at 19 (urging the Commission to take ``vigorous 
action to reign in the speculative bubble'' in energy commodities 
markets); Consumer (urging the Commission to address excessive 
speculation in commodities markets); Navajo Nation at 3 (expressing 
concern that the proposed Rule may fall short in addressing 
manipulative conduct).
    \33\ See, e.g., NPCA at 1; MPA at 2; IPMA at 3-4 (requesting 
that the Commission treat an oil company's decision to sell only 
gasoline pre-blended with ethanol at the terminal rack as a 
potentially manipulative practice); Murkowski at 1 (recommending 
that the Commission use its authority to address anti-competitive 
conduct in circumstances in which ``a single company gains exclusive 
control of energy-related infrastructure . . . for moving domestic 
crude to a consuming market'').
    \34\ See, e.g., CFTC (Arbit) at 1 (urging the Commission to 
``incorporate an exception from its rule for commodity futures and 
options trading activity on regulated futures exchanges''); CFTC 
(Chilton) at 2; CFDR at 8 (asking that the Commission refrain from 
encroaching on the CFTC's exclusive jurisdiction over futures 
transactions); Brown-Hruska at 8-9 (``[I]t is my hope that the 
Commission will narrow the focus of the rule tightly upon 
manipulative and deceptive conduct in the wholesale petroleum 
markets [to avoid overlap with the CFTC].''); ISDA at 14 (``[T]he 
Commission should clarify that it will refer to the CFTC any 
manipulative activity that it becomes aware of that does not 
directly involve a wholesale, physical petroleum products 
transaction.''); MFA at 2 (recommending that the Commission adopt a 
safe harbor for futures markets activities); Sutherland at 2 (urging 
the Commission to reconsider its decision to reach futures markets 
activities under any Section 811 rule). But see, e.g., Pirrong at 8 
(noting that objections that ``FTC actions against manipulation will 
interfere with the [CFTC's] jurisdiction over commodity market 
manipulation . . . are moot, because Congress has decided 
otherwise''); CA AG at 3 (``EISA . . . provide[s] the FTC with the 
power to monitor for and prevent fraud and deceit in the commodity 
futures market, insofar as it affects oil and gas futures.''); CFA2 
at 19 (urging the Commission to take ``vigorous action to reign in 
the speculative bubble and return the futures markets to their 
proper role to improve the functioning of physical commodity 
markets'').
    \35\ ATAA at 4-5 (asserting that the FTC properly concluded that 
oil pipelines are subject to the proposed Rule); IPMA at 4 (``We 
agree that Commission jurisdiction should extend to pipelines.''). 
But see AOPL at 1 (urging the Commission to revise its proposed Rule 
``to clarify that it does not apply to interstate common carrier oil 
pipelines regulated by the [FERC] under the Interstate Commerce Act 
(`ICA')'').
    \36\ See, e.g., ATA at 3 (urging the Commission to ``expand the 
scope of [the proposed Rule] to include alternative and renewable 
energy markets''); IPMA at 4 (agreeing that ``manipulation of non-
petroleum based commodities such as ethanol'' that affect the price 
of gasoline should be ``subject to Commission enforcement''); NPRA 
(Drevna), Tr. at 221-22 (agreeing that the Commission should reach 
blending components that are inputs to gasoline or diesel); SIGMA 
(Columbus), Tr. at 222-23 (agreeing that mandated alternative fuels 
and components should be covered under a rule). But see MFA at 3 
(asking that the Commission exclude from the Rule's coverage ethanol 
and commodities that may be used in the process of making ethanol 
``that are the subject of futures and options trading'').
---------------------------------------------------------------------------

III. Basis for the Rule

    Section 811 of EISA provides the legal basis for any petroleum 
market manipulation rule. Section 811

[[Page 18308]]

prohibits ``any person'' from ``directly or indirectly'' using or 
employing ``any manipulative or deceptive device or contrivance''--in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale--that violates a rule or regulation 
that the Commission ``may prescribe'' ``as necessary or appropriate in 
the public interest or for the protection of United States 
citizens.''\37\
---------------------------------------------------------------------------

    \37\ 42 U.S.C. 17301; see also 73 FR at 48320.
---------------------------------------------------------------------------

    The Commission has carefully considered concerns raised by 
commenters about the propriety of a rule.\38\ Most of the commenters 
who addressed the rulemaking standard agreed generally that a Section 
811 rule would be necessary or appropriate, and that it would be in the 
public interest to combat fraud in wholesale petroleum markets.\39\ A 
few commenters, however, specifically questioned the necessity or 
appropriateness of the proposed Rule.\40\ Sutherland, for example, 
argued that the proposed Rule failed to ``balance the Congressional 
directive for regulatory oversight with the goal of allowing economic 
efficiency,'' and was ``more intrusive of legitimate business behavior 
than is necessary.''\41\ NPRA stated that the proposed Rule's reliance 
on SEC Rule 10b-5 and related legal precedent as a model would create 
confusion and potentially discourage procompetitive activity, and, 
thus, would be neither necessary nor appropriate in the public 
interest.\42\
---------------------------------------------------------------------------

    \38\ Some commenters opined on the meaning of the language ``in 
the public interest or for the protection of United States 
citizens'' in the ANPR. See, e.g., CFDR, ANPR, at 4-5 (``The public 
interest and the protection of U.S. citizens . . . are best served 
by the adoption of a clear legal standard for market manipulation 
that will allow market participants to conduct their business with a 
clear understanding of the relevant legal boundaries.''); MFA, ANPR, 
at 17 (``FTC rules that purport to overlap with CFTC exclusive 
jurisdiction would not serve the public interest.''); Flint Hills, 
ANPR, at 17-18 (stating that the statutory language--``in the public 
interest''--reflects Congress' intention that the Commission draw 
upon its long experience in articulating ``the public interest'' 
under its other statutes).
    \39\ See, e.g., ATAA at 3 (noting that the proposed Rule is 
necessary to guard against conduct that undermines the integrity of 
petroleum markets); MS AG at 2 (``The proposed Rule will benefit 
consumers significantly because market manipulation can artificially 
inflate prices of petroleum products and cause consumers to pay more 
for essential goods, such as gasoline.''); IPMA at 4 (``The proposed 
Rule does meet the rulemaking standard that it is `necessary or 
appropriate in the public interest or for the protection of United 
States[] citizens.'''); see also PMAA at 2 (stating that the 
proposed Rule fulfilled ``the Commission's intention to, `prohibit 
manipulative and deceptive conduct without discouraging pro-
competitive or otherwise desirable market practices''' (quoting 73 
FR at 48323)); ATA at 2 (supporting the proposed Rule ``as an 
additional tool to help preserve the integrity of vital energy 
markets'').
    \40\ Most commenters directed their comments to the application 
of the Rule, rather than to whether the proposed Rule met the 
rulemaking standard articulated in Section 811.
    \41\ Sutherland at 2.
    \42\ NPRA at 15-16; see also API at 1 (arguing that a rule is 
unnecessary because ``repeated FTC investigations have found no 
evidence of significant harmful or illegal conduct [in petroleum 
markets]'').
---------------------------------------------------------------------------

    As stated in the NPRM, Section 811 of EISA targets manipulative or 
deceptive conduct in wholesale petroleum markets. In enacting this 
provision, Congress specifically authorized the Commission to determine 
whether a rule would be appropriate and in the public interest. Based 
upon its experience and perspective from several decades of protecting 
consumers and analyzing competition in petroleum markets, the 
Commission believes that it is both appropriate and in the public 
interest to publish a revised proposed rule prohibiting fraudulent and 
deceptive conduct in wholesale petroleum markets that serves no 
legitimate purpose.
    To achieve these objectives, the revised proposed Rule defines, for 
market participants, the Section 811 statutory prohibition of the use 
or employment of any ``manipulative or deceptive device or 
contrivance.''\43\ Like the initially proposed Rule, the revised 
proposed Rule would prohibit conduct that injects false information 
into market transactions. However, the revised proposed Rule more 
precisely identifies the conduct prohibited, and thus achieves a more 
appropriate balance between consumer protection interests and 
compliance burdens.\44\ Consequently, the Commission believes that it 
is both appropriate and in the public interest to publish the revised 
proposed Rule.
---------------------------------------------------------------------------

    \43\ 42 U.S.C. 17301.
    \44\ Several commenters expressed concern that a lack of clarity 
about the type of conduct covered by the proposed Rule could chill 
legitimate conduct, owing to potentially significant monetary 
penalties that might be imposed for any violation. See, e.g., API at 
9-10 n.12 (``[V]iolations of a market manipulation rule would expose 
market participants to substantial monetary penalties. This 
significantly increases the risk of chilling desirable practices as 
companies seek to minimize the risk of liability.''); Muris at 2 
(arguing that the necessary generality of the proposed Rule, 
``[c]oupled with the extraordinarily high penalties . . . creates 
the risk of chilling legitimate business decisions''); NPRA at 3 
(arguing that the harsh penalties associated with a Section 811 rule 
and the uncertainty created by the proposed application of SEC 
precedent, ``would prompt corporate compliance systems that would 
impair the procompetitive and cost-efficient functioning of 
wholesale petroleum markets'').
---------------------------------------------------------------------------

IV. Discussion of the Revised Proposed Rule

A. The Revised Proposed Rule is an Anti-Fraud Rule

    The Commission stated in the NPRM that its proposed Rule was 
modeled on the SEC's broad, anti-fraud Rule 10b-5.\45\ The Commission 
further stated that it intended to rely on only relevant SEC precedent 
in applying its rule.\46\ Although some commenters supported this 
approach, others raised concerns about basing a rule on SEC Rule 10b-5. 
The revised proposed Rule retains the anti-fraud concept of SEC Rule 
10b-5, but it is further tailored to wholesale petroleum markets. The 
following discussion addresses the use of SEC Rule 10b-5 as a model, 
and provides Commission responses to commenter concerns about this 
approach. The Commission invites written comments on the revised 
proposed Rule, particularly regarding the modifications made to the 
initially proposed Rule, and responses to the questions in Section 
IV.I.
---------------------------------------------------------------------------

    \45\ 73 FR at 48322.
    \46\ 73 FR at 48322 (stating that the Commission ``[was] not 
invoking the entire body of SEC law in this rulemaking, but rather 
the anti-fraud provisions of SEC Rule 10b-5'').
---------------------------------------------------------------------------

    Many commenters expressed general support for an anti-fraud rule, 
contending that a fraud standard would provide necessary guidance to 
market participants.\47\ A few commenters specifically endorsed the 
proposed Rule as articulated in the NPRM, without modification.\48\ 
Some commenters also

[[Page 18309]]

agreed with the Commission's decision to model the proposed Rule after 
SEC Rule 10b-5.\49\ For example, SIGMA argued that a SEC Rule 10b-5 
model would ``ensure[] consumer protection while affording business 
owners a wealth of certainty with respect to their market 
practices.''\50\ A few commenters expressly embraced the Commission's 
decision to use the legal precedent under SEC Rule 10b-5 for guidance 
in interpreting a Section 811 rule.\51\
---------------------------------------------------------------------------

    \47\ See, e.g., CFDR (Mills), Tr. at 38-39 (``From my point of 
view, fraud is a good demarcation for any antimanipulation rule, 
because it provides a basis by which people can govern themselves 
and know with some understanding of what kind of conduct is going to 
violate a rule or not.''); API (Long), Tr. at 33 (stating that ``in 
general, fraud is a useful limiting concept''); PMAA (Bassman), Tr. 
at 47 (``[U]sing fraud . . . is very clear, because none of the 
people operating in this market operate without the benefit of legal 
counsel. Any legal counsel understands the concept of fraud, and 
fraud does belong here.''); ATAA at 11 (stating that the ``proposed 
rule properly contains a broad anti-fraud provision''); ABA Energy 
(McDonald), Tr. at 246 (urging the Commission to ``focus on 
deceptive conduct that hinders the operations of markets by 
misleading participants''); see also ISDA (Velie), Tr. at 40 (``[W]e 
think fraud is a good standard, as long as it's coupled with 
specific intent to manipulate a market.''); Flint Hills (Hallock), 
Tr. at 46 (``I think it's important to keep a focus, though, on the 
aim of the fraud, and the aim of the fraud that I believe that the 
agency has been looking for is fraud upon a market . . . .''); NPRA 
at 2 (``NPRA endorses the FTC's determination that implementation of 
the EISA should be accomplished through a rule against fraud and 
deception that harms the competitive functioning of wholesale 
petroleum markets and, ultimately, consumers.'').
    \48\ See, e.g., MS AG at 2 (``The proposed Rule will benefit 
consumers significantly because market manipulation can artificially 
inflate prices of petroleum products and cause consumers to pay more 
for essential goods, such as gasoline.''); PMAA at 2 (stating that 
the proposed Rule prohibits manipulative and deceptive conduct 
without chilling pro-competitive behavior); CA AG at 2 (expressing 
support for the FTC's proposed Rule).
    \49\ See, e.g., SIGMA at 2 (expressing support for the 
Commission's decision to base its proposed Rule on Rule 10b-5); ATAA 
at 11 (``[ATAA] supports the proposed rule's use of SEC Rule 10b-5 
as the model for a rule designed to proscribe market 
manipulation.''); see also PMAA at 2 (supporting the Commission's 
decision not to ``slavishly follow[]'' the Rule 10b-5 model); Boxer 
at 1 (``I think it's [great] to have Rule 10b-5 essentially extended 
to the oil traded on the [NYMEX] and ICE exchanges . . . .'').
    \50\ SIGMA at 2.
    \51\ See, e.g., CFDR at 2 (``The Commission . . . rightly looks 
to securities law precedents for guidance in shaping the legal 
standards and jurisprudence under EISA.''); ATAA at 11 (``[Rule 10b-
5] provides the FTC with a well-developed framework to follow.'').
---------------------------------------------------------------------------

    Other commenters expressed concern about the Commission's reliance 
on SEC Rule 10b-5 language and its legal precedent.\52\ Generally, 
these commenters argued that the legal precedent developed under SEC 
Rule 10b-5 cannot be divorced from the language of Rule 10b-5 
itself.\53\ They contended that securities markets are characterized by 
legal relationships of trust and an emphasis on full disclosure which 
do not exist in wholesale petroleum markets.\54\ These commenters 
argued that relying upon SEC Rule 10b-5 legal precedent therefore would 
create confusion and uncertainty as to what conduct would violate the 
proposed Rule.\55\ Some commenters asserted that, as a result, the 
proposed Rule potentially would chill legitimate business conduct, and 
that its uncertain scope would make it difficult for companies to 
create effective programs for compliance with the Rule.\56\
---------------------------------------------------------------------------

    \52\ As a threshold matter, some of these commenters disagreed 
with the Commission's tentative determination in the NPRM that the 
language of Section 811 indicated that the FTC should model a 
Section 811 rule after Rule 10b-5, arguing that if this had truly 
been the intent of Congress, it would have included an explicit 
directive in the statute similar to the directive in the FERC's 
anti-manipulation authority. See 15 U.S.C. 717c-1; 16 U.S.C. 824v; 
FERC, Prohibition of Energy Market Manipulation, 71 FR 4244, 4246 
(Jan. 26, 2006). See, e.g., NPRA at 15-16 (stating that the language 
of Section 811 does not require that the Commission model an FTC 
rule after SEC Rule 10b-5); API at 12 (``The language of Section 811 
thus authorizes the Commission to take a different approach than the 
[FERC] . . . .''); ISDA at 6 (stating that, unlike the FERC's market 
manipulation statute, Section 811 does not contain express language 
directing it to rely on securities precedent).
    \53\ See, e.g., API at 15 (``The Rule 10b-5 regulatory regime is 
deeply intertwined with the disclosure obligations imposed by 
Section 10(b) and other provisions of the SEA, the scope of which, 
in turn, are highly dependent on the fiduciary duties and 
obligations that exist between various market participants.''); see 
also ISDA at 7 (stating that disclosure requirements are 
``[i]nterwoven and inextricably part of securities regulation'').
    \54\ See, e.g., NPRA at 4, 7 (arguing that due to the absence of 
fiduciary and other duties and disclosure obligations in wholesale 
petroleum markets, it would be ``bad public policy to apply [Rule 
10b-5] to purchasers or sellers in wholesale petroleum markets''); 
ISDA at 7 (stating that in the absence of legal trust relationships, 
it is unclear if Rule 10b-5 principles are applicable to wholesale 
petroleum markets); Pirrong Tr. at 36 (stating that a Rule 10b-5 
case raises ``issues related to fiduciary duty that are inherent in 
the securities laws, but which are not really appropriate or really 
that relevant in a commodities context''); API at 25 (arguing that 
unlike wholesale petroleum markets, the securities marketplace is a 
regulated industry ``governed by detailed disclosure obligations 
designed to protect unsophisticated investors''); Plains at 3 
(stating that in crude oil markets, unlike securities markets, 
``there is no presumption that one market participant owes any 
duties to its counterparties that would require disclosure of any 
information'').
    \55\ See, e.g., API at 9 (applying Rule 10b-5 precedent 
``without any modification . . . would create confusion and chill 
pro-competitive behavior''); NPRA at 16 (``[A] blanket transfer of 
the language and precedent of Rule 10b-5 from securities markets to 
wholesale petroleum markets would likely create significant 
confusion and discourage procompetitive activity.'').
    \56\ See, e.g., Flint Hills at 5 (stating that the proposed Rule 
does not ``provide practical, clear, articulate guidance to its 
staff, traders and others dealing on [its] behalf'' as to prohibited 
conduct); API at 8 (stating that the benefits of an FTC rule are 
outweighed by ``potentially significant compliance costs'' and the 
risk of ``interfer[ing] with the efficient functioning of petroleum 
markets and deter[ring] procompetitive, welfare-enhancing 
behavior''); NPRA at 3 (``[A]s drafted, the language of the proposed 
rule instead would prompt corporate compliance systems that would 
impair the procompetitive and cost-efficient functioning of 
wholesale petroleum markets.''); see also ISDA at 9 (``Under the 
proposed Rule, market participants are likely to be concerned that 
their competitive trading strategies or inadvertent miscalculations 
may later be misconstrued by regulators . . . .'').
---------------------------------------------------------------------------

    Many commenters offered modifications to the proposed Rule intended 
to adapt it to wholesale petroleum markets.\57\ Commenters who urged 
the Commission to diverge from SEC Rule 10b-5 legal precedent suggested 
revising the proposed Rule to include express language requiring both a 
showing of specific intent--to satisfy the scienter requirement\58\--
and a showing of price effects.\59\ Some commenters recommended that 
the Commission draw instead upon legal precedent construing the 
CEA.\60\ Others argued that an anti-fraud manipulation rule would not 
go far enough, or that it should reach different types of conduct.\61\ 
One commenter, for example, suggested that the rule should target the 
exercise of market power intended to benefit a derivatives

[[Page 18310]]

position.\62\ Other commenters specifically urged the Commission to 
prohibit refiners and suppliers from refusing to sell unblended 
gasoline to distributors.\63\
---------------------------------------------------------------------------

    \57\ API and NPRA suggested that the Commission retain the 
elements of a violation but not the language of the proposed Rule, 
or at least modify the language of the proposed Rule to clarify its 
application. API at 15-16; NPRA at 16-17 (stating that the elements 
of SEC Rule 10b-5 detached from securities precedent and with 
modifications are a ``better starting point'' for a rule rather than 
the specific language of Rule 10b-5); see also API at 12 (``The 
language of Section 811 thus authorizes the Commission . . . to 
modify the Rule 10b-5 regime in light of its extensive experience 
with the petroleum industry.''); ISDA at 6 (stating that, unlike the 
FERC's market manipulation statute, Section 811 does not contain 
express language directing it to rely on securities precedent).
    \58\ Some commenters recommended that the Commission adopt the 
CEA's specific intent standard. See, e.g., ISDA at 10-11 (stating 
that the CEA's intent requirement is better suited for commodities 
markets than the FTC's proposed scienter requirement); API at 21-22 
(advocating for a specific intent standard similar to that of the 
CEA); see also NPRA at 32 (stating that the proposed Rule should 
require specific intent in order to harmonize the proposed Rule with 
the CFTC's market manipulation authority); CFDR at 7 (stating that a 
specific intent standard ``would substantially help to harmonize the 
legal standard between the Commission's rule and the CFTC's 
interpretation of the CEA'').
    \59\ See, e.g., ISDA at 3-4 (asking that the Commission require 
proof of price effects); Plains at 3 (urging the Commission to make 
clear that only conduct that has a ``manipulative effect on the 
relevant market'' will be actionable); API at 34 (recommending that 
the Commission require ``proof that a party's deceptive or 
fraudulent conduct caused market conditions to deviate materially 
from the conditions that would have existed but for that conduct'').
    \60\ A few commenters asserted that the standards applied to 
commodities markets, including futures commodities markets, under 
the CEA are more applicable to petroleum markets than is securities 
legal precedent. See, e.g., ISDA at 11 (stating that CEA ``precedent 
is much more analogous to the markets the EISA seeks to protect''); 
API at 15 (urging the Commission to ``draw on relevant commodities 
law precedents in addition to elements of Rule 10b-5''); see also 
Brown-Hruska at 4 (``[T]he mission of the Commission is more 
analogous to that of the commodities market regulator, the CFTC, 
which has the responsibility to ensure that the prices derived from 
and used by futures markets are fair and free from fraud and 
manipulation.''). See generally Pirrong at 5 (recommending that the 
Commission follow a modified CEA price manipulation model). But see 
NPRA (DeSanti), Tr. at 251 (``I want to be explicit that the NPRA 
does not support using [a] CEA model here.'').
    \61\ See, e.g., Navajo Nation (Piccone), Tr. at 37-38 (arguing 
that a rule should address nonfraudulent, manipulative acts such as 
a refiner denying producers access to other markets); Navajo Nation 
at 3 (seeking confirmation that an FTC rule ``will be applied to 
prohibit all manipulative conduct that artificially distorts 
wholesale petroleum markets or undermines incentives to find and 
develop reserves of domestic crude oil''); see also CFA (Cooper), 
Tr. at 160 (stating that fraud is too narrow a focus and the 
proposed Rule also should cover market power issues); CFA2 at 8 
(urging the FTC to ``identify and attack the broad range of 
practices and structural conditions that can and have been moving 
prices in the markets'').
    \62\ Pirrong at 2-5 & n.2 (defining ``derivatives'' to include 
``exchange-traded futures contracts, and options on futures, and 
forward and options contracts traded in the over-the-counter . . . 
market'').
    \63\ MPA at 2 & n.1 (noting that MPA's members share the 
experiences described by IPMA and TOMA in their ANPR comments and 
IPMA in its NPRM comment, and that distributors and retailers can 
often obtain more competitive prices if they buy unblended gas 
separately from ethanol, which they then add to the gasoline before 
selling it at retail); see also NPCA at 1; IPMA at 2-3. MPA also 
recommended that the Commission reach the aforementioned conduct, 
which has ``an adverse effect on competition'' under an FTC rule. 
MPA at 2. The Commission does not intend to focus on anti-
competitive conduct in its application of the final Rule, which 
remains the province of antitrust law. The approach is consistent 
with Section 815 of EISA. See 42 U.S.C. 17305(b); see also ABA 
Energy (McDonald), Tr. at 244 (arguing that the final Rule should 
not reach conduct that is already covered by the antitrust laws, 
such as the unilateral exercise of market power).
---------------------------------------------------------------------------

    Based on the rulemaking record developed thus far, as well as its 
extensive experience with the petroleum industry, the Commission 
believes that modifying the proscriptions of the initially proposed 
Rule will better focus it on wholesale petroleum markets, which differ 
significantly from securities markets. As explained in the ANPR and the 
NPRM, the conduct prohibition in Section 811 is identical to language 
found in SEA Section 10(b), which prohibits the use of any 
``manipulative or deceptive device or contrivance.''\64\ The Commission 
believes that this language directs the agency to be guided by SEC Rule 
10b-5,\65\ a broad anti-fraud rule.\66\ However, the inclusion of the 
language ``as necessary or appropriate'' in Section 811 further directs 
the Commission to use its expertise to tailor the rule in a manner 
appropriate for wholesale petroleum markets.\67\
---------------------------------------------------------------------------

    \64\ See 73 FR at 25619; 73 FR at 48322. The anti-manipulation 
authority granted to the FERC also contains the identical conduct 
prohibition, and the statute granting that authority explicitly 
directed the FERC to rely upon SEA Section 10(b) in defining the 
terms ``manipulative or deceptive device or contrivance.'' See 15 
U.S.C. 717c-1; 16 U.S.C. 824v.
    \65\ The language of Section 811 reflects congressional intent 
that the Commission look to SEC Rule 10b-5 in crafting a market 
manipulation rule. See Evans v. United States, 504 U.S. 255, 260 n.3 
(```[I]f a word is obviously transplanted from another legal source, 
whether the common law or legislation, it brings the old soil with 
it.''') (quoting Felix Frankfurter, Some Reflections on the Reading 
of Statutes, 47 Colum. L. Rev. 527, 537 (1947)); Morissette v. U.S., 
342 U.S. 246, 263 (1952) (noting where Congress borrows terms of art 
it ``presumably knows and adopts the cluster of ideas that were 
attached to each borrowed word''); see also National Treasury 
Employees Union, et al. v. Chertoff, 452 F.3d 839, 858 (D.C. Cir. 
2006) (stating that ``there is a presumption that Congress uses the 
same term consistently in different statutes'').
    \66\ Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 
404 U.S. 6, 12 (1971) (stating that preserving the integrity of 
securities markets is one of the purposes of Rule 10b-5); U.S. v. 
Russo, 74 F.3d 1383, 1391 (2d Cir. 1996) (``[F]rauds which 
`mislead[] the general public as to the market value of securities' 
and `affect the integrity of the securities markets' . . . fall well 
within [Rule 10b-5].'') (citations omitted); In re Ames Dep't 
Stores, Inc. Stock Litig., 991 F.2d 953, 966 (2d Cir. 1993) (stating 
that frauds affecting the integrity of securities markets fall under 
Rule 10b-5).
    \67\ To do otherwise would violate a canon of statutory 
construction. See TRW, Inc. v. Andrews, 534 U.S. 19, 31 (2001) (``It 
is `a cardinal principle of statutory construction' that `a statute 
ought, upon the whole, to be so construed that, if it can be 
prevented, no clause, sentence, or word shall be superfluous, void, 
or insignificant.''') (citations omitted).
---------------------------------------------------------------------------

    The Commission has modified the initially proposed Rule after 
considering comments provided during the public comment period and at 
the public workshop. The modifications should clarify the requirements 
imposed by the revised proposed Rule for market participants. The 
Commission recognizes that, in the absence of a more extensive 
regulatory scheme, the omissions provision in Section 317.3 of the 
initially proposed Rule could discourage legitimate business conduct in 
wholesale petroleum markets that benefits consumers. Therefore, the 
Commission has consolidated the three subsections of Section 317.3 into 
two subsections, and has added language both to sharpen its focus on 
fraudulent and deceptive conduct and to reduce potential adverse 
effects on legitimate business conduct. Specifically, the Commission 
has added an explicit scienter standard for each subsection of Section 
317.3, and has added language to the omissions provision now contained 
in Section 317.3(b) to ensure that it prohibits only the omission of 
material facts that is both misleading under the circumstances and 
distorts or tends to distort market conditions for the covered 
products.
    The Commission has retained the general anti-fraud prohibition 
contained in Section 317.3(c) of the initially proposed Rule in revised 
proposed Section 317.3(a). Thus, revised proposed Section 317.3(a) 
would prohibit any person from knowingly engaging in conduct--including 
making any untrue statement of material fact--that operates or would 
operate as a fraud or deceit on any person. Revised proposed Section 
317.3(a) would not prohibit omissions of material facts. Such omissions 
would instead be covered by revised proposed Section 317.3(b), which 
would prohibit any person from intentionally failing to state a 
material fact which both makes a given statement misleading under the 
circumstances and distorts or tends to distort market conditions for a 
covered product. These modifications are intended to eliminate 
redundancy and more precisely define the conduct that revised proposed 
Rule Section 317.3 would prohibit; that is, fraudulent or deceptive 
conduct that injects false information into wholesale petroleum market 
transactions.
    The Commission believes that this framework best reflects both 
congressional intent and the nature of the markets covered by the 
revised proposed Rule. The Commission recognizes, however, that this 
approach may be too narrow to prevent all manipulative conduct. The 
Commission therefore does not foreclose the possibility of extending 
the scope of any final rule in the future if new information or 
enforcement experience warrant such modifications.

B. Section 317.1: Scope

    Section 813 provides the Commission with the same jurisdiction and 
power under Subtitle B of EISA as does the FTC Act, 15 U.S.C. 41 et 
seq.\68\ With certain exceptions, the FTC Act provides the agency with 
jurisdiction over nearly every economic sector. Because EISA does not 
expand or contract coverage under the FTC Act, any ``person'' currently 
subject to the Commission's jurisdiction--that is, any individual, 
group, unincorporated association, limited or general partnership, 
corporation, or other business entity--would be covered by the revised 
proposed Rule. Conversely, any ``person'' not subject to Commission 
jurisdiction under the FTC Act would also not be subject to Commission 
jurisdiction under the revised proposed Rule.
---------------------------------------------------------------------------

    \68\ Section 813(a) of EISA provides that Subtitle B shall be 
enforced by the FTC ``in the same manner, by the same means, and 
with the same jurisdiction as though all applicable terms of the 
[FTC] Act (15 U.S.C. 41 et seq.) were incorporated into and made a 
part of [Subtitle B].'' 42 U.S.C. 17303 (emphasis added).
---------------------------------------------------------------------------

    In response to the NPRM, some commenters asked the Commission to 
clarify the jurisdictional scope of any final rule. With respect to 
pipelines, one commenter, AOPL, asserted that ``interstate common 
carrier oil pipelines regulated by the FERC under the ICA are exempt 
from Commission jurisdiction'' and should be excluded from the coverage 
of any FTC rule.\69\ AOPL

[[Page 18311]]

further suggested that the Commission provide a ``safe harbor 
protecting oil pipelines against any culpability under the rule so long 
as they are acting in accordance with the ICA and FERC regulation of 
oil pipelines pursuant to the ICA.''\70\ In support of this position, 
AOPL argued that the FERC already regulates pipelines extensively\71\ 
and that the potential for manipulation of commodities prices by oil 
pipelines is small.\72\ Another commenter, ATAA, opposed any safe 
harbors or exemptions for pipelines in order to give full effect to the 
purpose of EISA.\73\ According to ATAA, it is important for the 
Commission to police this area because ``it is far from clear that 
FERC's jurisdiction extends to price manipulation,'' and because the 
``FERC has never pursued `price manipulation' claims'' against oil 
pipelines.\74\
---------------------------------------------------------------------------

    \69\ AOPL at 1 & n.3 (urging the Commission to clarify that it 
will not apply a Section 811 rule to reach common carrier oil 
pipelines, defining ``oil pipelines'' to include crude oil and 
petroleum products pipelines).
    \70\ AOPL at 14.
    \71\ AOPL asserted that comprehensive regulation of oil 
pipelines by the FERC makes regulation by the FTC under any final 
rule ``neither necessary nor appropriate in the public interest or 
for the protection of U.S. citizens.'' AOPL at 11.
    \72\ AOPL at 11-12 (contending that ``there is little or no 
potential for manipulation of oil commodities prices on the part of 
oil pipelines'' because regulations and competition limit pipeline 
companies' ability to engage in anticompetitive conduct).
    \73\ ATAA at 4 (arguing that the Commission should reach 
manipulative conduct relating to oil pipelines in order to give full 
effect to EISA); see also Navajo Nation (Piccone), Tr. at 37-38 
(arguing that Congress gave the FTC new authority to combat anti-
competitive practices, including practices by pipelines); IPMA at 4 
(``We agree that Commission jurisdiction should extend to 
pipelines.'').
    \74\ ATAA at 5 (asserting that the FERC ``exercises what at best 
can be described as `light-handed' regulation of oil pipelines and 
[it] has never pursued `price manipulation' claims at all''); see 
also Navajo Nation (Hollis), Tr. at 239 (explaining the FERC's 
limited authority over oil pipelines).
---------------------------------------------------------------------------

    In response, the Commission notes that not all pipelines 
necessarily fall outside the coverage of the FTC Act.\75\ Certain 
pipeline companies or their activities may fall outside the coverage of 
the FTC Act to the extent that they are acting as ``common carriers.'' 
However, pipeline companies and their owners or affiliates are often 
involved in multiple aspects of the petroleum industry--including the 
purchase or sale of petroleum products, and the provision of 
transportation services--and they may engage in conduct in connection 
with wholesale petroleum markets covered by EISA.
---------------------------------------------------------------------------

    \75\ Under the Clayton Act, the Commission has the power and 
authority to regulate mergers and acquisitions of pipelines. See 
Clayton Act, Sections 7 and 11, 15 U.S.C. 18, 21.
---------------------------------------------------------------------------

    FERC regulation of pipelines would be an insufficient basis upon 
which to exempt pipeline companies if they engage in prohibited conduct 
in connection with the wholesale purchase or sale of crude oil, 
gasoline, or petroleum distillates. The Commission therefore must 
assess on a case-by-case basis whether any particular ``person'' as 
defined in the revised proposed Rule--or any conduct at issue--may fall 
outside the scope of the revised proposed Rule, and/or whether the 
conduct at issue falls under the ``in connection with'' language in the 
revised proposed Rule, which is discussed below.
    Some commenters argued that any final rule should not extend to 
fraud in futures markets, as the Commission had proposed. Many of these 
commenters observed that the CFTC has exclusive jurisdiction pursuant 
to Section 2(a)(1)(A) of the CEA,\76\ and that the Commission should 
therefore grant a safe harbor for futures markets activities.\77\ These 
commenters argued in particular that Congress granted the CFTC 
exclusive jurisdiction over futures markets in order to create uniform 
rules and to avoid applying inconsistent legal standards to futures 
markets.\78\ They further argued that if an FTC rule applied to futures 
trading, market participants could face duplicative and possibly 
inconsistent enforcement by multiple agencies based on the same 
conduct.\79\ One commenter maintained that if the Commission declined 
to adopt a safe harbor, the Commission should harmonize any final rule 
with the elements of a cause of action for price manipulation under the 
CEA, which are not part of the statutory provision.\80\
---------------------------------------------------------------------------

    \76\ Section 2 of the CEA states that ``[t]he [CFTC] shall have 
exclusive jurisdiction . . . with respect to accounts, agreements . 
. . and transactions involving contracts of sale of a commodity for 
future delivery . . . traded or executed on a contract market 
designated . . . pursuant to [S]ection 7 or 7a of this title'' of 
the CEA. 7 U.S.C. 2(a)(1)(A).
    \77\ See, e.g., CFTC (Arbit) at 1 (``We again urge the FTC to 
incorporate an exception from its rule for commodity futures and 
options trading activity on regulated futures exchanges, which is 
subject to the CFTC's exclusive jurisdiction granted by the 
[CEA].''); CFTC (Chilton) at 2 (``I urge the FTC to incorporate an 
exception for futures trading subject to the exclusive jurisdiction 
of the CEA.''); MFA at 2 (urging the Commission on behalf of futures 
associations and exchanges to grant a safe harbor for futures and 
options trading). But see CA AG at 3-4 (advocating against 
application of safe harbors designed specifically to avoid overlap 
with the CFTC's regulatory jurisdiction and warning of potential 
jurisdictional limitations created by ``shackling the FTC with the 
restrictions placed upon CFTC authority''); ATAA at 4 (``[T]he rule 
proscribes `manipulation or deceptive conduct' in a narrow and 
straightforward manner that does not `improperly intrude upon the 
jurisdiction of the CFTC or any other agency.'''); Pirrong at 8 
(noting that in giving the FTC market manipulation authority, 
Congress has in some respects rendered moot any questions of the 
FTC's interference with the CFTC's jurisdiction); CFA2 at 19-20 
(urging the Commission to reach conduct in futures markets).
    \78\ See, e.g., MFA at 3 (``Congress designed the CFTC's 
exclusive jurisdiction to make absolutely certain that the 
provisions of the CEA . . . would be the sole legal standards 
applicable to futures trading.''); CFTC (Arbit) at 3 (stating that 
Congress granted the CFTC exclusive jurisdiction over futures 
trading to avoid applying inconsistent standards to futures 
markets); see also CFDR at 9 (stating that it seems illogical to 
apply a rule specifically intended to govern activities in the 
commodities markets to futures markets); CFTC (Chilton) at 1 
(stating that applying a Section 811 rule to futures markets ``would 
seriously undermine the Congressional grant of exclusive 
jurisdiction in the CEA, and impair the CFTC's ability to 
effectively oversee futures activity''); see also Sutherland at 2 
(asserting that the proposed Rule ``impinges upon the [CFTC's] 
exclusive jurisdiction with respect to the futures and other purely 
financial markets'').
    \79\ See, e.g., Sutherland at 2 (``The proposed rule creates a 
duplicative and potentially highly burdensome enforcement 
regime.''); CME (Dow), Tr. at 29 (explaining that application of an 
FTC rule to futures markets is a ``recipe for disaster . . . because 
it results in overlapping regulatory regimes by multiple 
regulators''); MFA at 3 (arguing that the legislative history and 
the language of CEA's exclusive jurisdiction provision demonstrates 
that Congress believed that applying conflicting or duplicative 
regulations to futures markets would ``impair the operations of U.S. 
futures markets''); Brown-Hruska at 8-9 (recommending that the 
Commission narrow the focus of the rule to manipulative and 
deceptive conduct in wholesale petroleum markets to avoid regulatory 
overlap ``that would give rise to legal uncertainty in the exchange-
traded and over-the-counter derivative markets'').
    \80\ MFA at 3 (urging the Commission ``to avoid having [the 
Rule's] provisions contradict and conflict with CEA legal 
requirements'' by requiring specific intent and a showing of price 
effects as elements of an offense).
---------------------------------------------------------------------------

    At this time, the Commission does not intend to adopt a blanket 
safe harbor for futures market activities. Nonetheless, the Commission 
recognizes the CFTC's jurisdiction ``with respect to accounts, 
agreements . . . and transactions involving contracts of sale of a 
commodity for future delivery.''\81\ Consistent with its longstanding 
practice of coordinating its enforcement efforts with other federal or 
state law enforcement agencies where it has overlapping or 
complementary jurisdiction, the Commission intends to work 
cooperatively with the CFTC in furtherance of the Commission's duty to 
prevent fraud in wholesale petroleum markets.\82\
---------------------------------------------------------------------------

    \81\ 7 U.S.C. 2(a)(1)(A).
    \82\ This position is consistent with the views of commenters 
who urged the FTC to work with the CFTC where appropriate, including 
the CFTC itself. See, e.g., CFTC (Arbit) at 3 (``[T]he CFTC looks 
forward to working in close cooperation with the FTC to efficiently 
prosecute illegal activity in the petroleum industry where our 
agencies share jurisdiction.''); Sutherland at 4 (``[C]ooperative 
arrangements in place between the FTC and CFTC . . . can be tailored 
to allow each agency to pursue the compliance matters within its 
greatest competence--the physical markets in the case of the FTC and 
the financial markets in the case of the CFTC.''); MFA at 9 (urging 
the Commission and the CFTC to coordinate enforcement in areas 
outside the CEA's exclusive jurisdiction provision for futures 
markets).

---------------------------------------------------------------------------

[[Page 18312]]

    Finally, some commenters voiced the concern that if the Commission 
relies upon the text and judicial construction of SEC Rule 10b-5 
language and securities law precedent, courts would be more inclined to 
find an implied private right of action under any final rule.\83\ 
Commenters urged the Commission to clarify that any final rule would 
not create or imply a private right of action.\84\ In response, the 
Commission notes that EISA does not expressly create a private right of 
action.\85\ Whether a private right of action might be implied, 
however, is a question of legislative intent for Congress or the 
courts, not the Commission, to resolve.
---------------------------------------------------------------------------

    \83\ See, e.g., NPRA at 15 (``The greater the emphasis on SEC 
authorities as a source of the Commission's Rule, the greater the 
likelihood that courts would follow the SEC model to imply a private 
right of action under EISA as well.''); Flint Hills at 4 (noting 
that the closer the Commission adheres to a SEC Rule 10b-5 model, 
the more difficult it will be to design a compliance program to 
preclude third-party litigation).
    \84\ See, e.g., Sutherland at 7 (``[The Commission] should make 
clear that neither EISA nor the proposed Rule creates any private 
right of action.''); Plains at 1 (``We urge the Commission to make 
it clear that its proposed rule does not create any private right of 
action and that the rule may be enforced only by the Commission 
itself.''); API at 10 (``The Commission should make clear in any 
final Rule that it does not create a private right of action.'').
    \85\ See API at 10 (agreeing that ``Congress did not expressly 
provide for a private right of action in Section 811'').
---------------------------------------------------------------------------

C. Section 317.2: Definitions

    The revised proposed Rule provides definitions for six terms: 
``crude oil,'' ``gasoline,'' ``knowingly,'' ``person,'' ``petroleum 
distillates,'' and ``wholesale.'' Five of these terms were defined in 
the initial NPRM, and the definitions of those five terms herein remain 
largely the same as those in the initially proposed Rule.\86\ In 
addition, the revised proposed Rule now includes a definition of the 
term ``knowingly.'' These definitions establish the scope of the 
revised proposed Rule's coverage and provide guidance as to the 
Commission's intended enforcement of the Rule.
---------------------------------------------------------------------------

    \86\ 73 FR at 48325-26.
---------------------------------------------------------------------------

    Several commenters addressed the definitions proposed in the 
initial NPRM, and some of them also suggested additional definitions. 
These comments, together with the Commission analysis of the 
definitions that are included in the revised proposed Rule, are 
discussed below.
1. Section 317.2(a): ``Crude oil''
    Section 317.2(a) of the initially proposed Rule defined ``crude 
oil'' to mean: ``the mixture of hydrocarbons that exist: (1) in liquid 
phase in natural underground reservoirs and which remain liquid at 
atmospheric pressure after passing through separating facilities, or 
(2) as shale oil or tar sands requiring further processing for sale as 
a refinery feedstock.''\87\ As explained in the NPRM, the Commission 
intended the definition to include ``liquid crude oil and any 
hydrocarbon form that can be processed into a refinery feedstock,'' but 
to exclude ``natural gas, natural gas liquids, or non-crude refinery 
feedstocks.''\88\
---------------------------------------------------------------------------

    \87\ 73 FR at 48325.
    \88\ 73 FR at 48325.
---------------------------------------------------------------------------

    Two commenters, PMAA and Navajo Nation, supported the proposed 
definition of ``crude oil,''\89\ and no commenter provided a basis for 
changing it. Section 317.2(a) of the revised proposed Rule thus retains 
the substantive definition of ``crude oil'' in the initially proposed 
Rule. However, the definition in the revised proposed Rule has three 
non-substantive modifications.\90\ Section 317.2(a) of the revised 
proposed Rule therefore defines ``crude oil'' as ``any mixture of 
hydrocarbons that exists: (1) in liquid phase in natural underground 
reservoirs and that remains liquid at atmospheric pressure after 
passing through separating facilities, or (2) as shale oil or tar sands 
requiring further processing for sale as a refinery feedstock.''
---------------------------------------------------------------------------

    \89\ PMAA at 3 (``The definition[] of `crude oil' . . . seem[s] 
appropriate.''); Navajo Nation at 7 (adopting the FTC's proposed 
definition of ``crude oil'' in its recommended rule text).
    \90\ The word ``exist'' in the definition has been replaced with 
the word ``exists''; the phrase ``the mixture'' has been changed to 
``any mixture''; and in the first part of the definition, the phrase 
``which remain'' has been changed to ``that remains.''
---------------------------------------------------------------------------

2. Section 317.2(b): ``Gasoline''
    Section 317.2(b) of the initially proposed Rule defined 
``gasoline'' to mean: ``(1) finished gasoline, including, but not 
limited to, conventional, reformulated, and oxygenated blends, and (2) 
conventional and reformulated gasoline blendstock for oxygenate 
blending.''\91\ Three commenters generally supported the proposed 
definition.\92\
---------------------------------------------------------------------------

    \91\ 73 FR at 48325.
    \92\ PMAA at 3 (``The definition[] of . . . `gasoline' . . . 
seem[s] appropriate.''); IPMA at 4 (agreeing with the Commission's 
proposed definition of ``gasoline''); Navajo Nation at 7 (adopting 
the FTC's proposed definition of ``gasoline'' in its recommended 
rule text).
---------------------------------------------------------------------------

    Several commenters offered views on whether ethanol or renewable 
fuels should be included as covered products under any final rule. Some 
of them expressed general support for including ethanol or renewable 
fuels.\93\ One commenter specifically opposed including ethanol in the 
definition of ``gasoline.''\94\
---------------------------------------------------------------------------

    \93\ See, e.g., ATA at 1 (encouraging the Commission to include 
renewable fuels markets in the proposed Rule's reach); PMAA at 3 
(stating that the Commission should reach the manipulation of 
ethanol under the rule); see also IPMA at 4 (``[A]gree[ing] with the 
language that manipulation of non-petroleum based commodities such 
as ethanol and other oxygenates that directly or indirectly affect 
the price of gasoline should be subject to Commission enforcement 
under the proposed Rule.'').
    \94\ MFA at 12 (requesting that the Commission ``delete its 
reference to `ethanol' as a subset of `gasoline''').
---------------------------------------------------------------------------

    Section 317.2(b) of the revised proposed Rule retains, without 
modification, the definition of ``gasoline'' in the initially proposed 
Rule. Consistent with its position in the NPRM, the Commission intends 
to capture those commodities regularly traded as finished gasoline 
products or as gasoline products requiring only oxygenate blending to 
be finished, under this definition.\95\
---------------------------------------------------------------------------

    \95\ See 73 FR at 48325.
---------------------------------------------------------------------------

    The Commission tentatively has determined not to treat products not 
listed in Section 811--such as renewable fuels (e.g., ethanol) and 
blending components (e.g., alkylate and reformate)--as separate covered 
products under its definition of ``gasoline.'' The Commission may 
nonetheless apply the revised proposed Rule to conduct implicating non-
covered commodities if appropriate under the ``in connection with'' 
language in the revised proposed Rule, as discussed below in Section 
IV.D.2.a.2. This approach would provide the Commission with sufficient 
flexibility to achieve the statutory goal of protecting wholesale 
petroleum markets from manipulation without expanding the reach of a 
Section 811 rule to cover products not identified in the statute.
3. Section 317.2(c): ``Knowingly''
    Section 317.2(c) of the revised proposed Rule defines ``knowingly'' 
to mean ``with actual or constructive knowledge such that the person 
knew or must have known that his or her conduct was fraudulent or 
deceptive.'' This definition has been added to provide guidance as to 
the level of scienter required to establish a violation of the general 
anti-fraud provision contained in revised proposed Rule Section 
317.3(a). Consistent with the position the Commission adopted in the 
NPRM, the definition of ``knowingly'' derives from the extreme 
recklessness standard articulated by the Seventh Circuit and the 
District of Columbia Circuit Courts of Appeals in decisions delineating 
the appropriate scienter

[[Page 18313]]

standard under SEC Rule 10b-5.\96\ The Commission discusses in further 
detail the intended application of the term ``knowingly'' in Section 
IV.D.2.b.1. below.
---------------------------------------------------------------------------

    \96\ 73 FR at 48329 (citing SEC v. Steadman, 967 F.2d 6436, 641-
42 (D.C. Cir. 1992)); see also Sundstrand Corp. v. Sun Chemical 
Corp., 553 F.2d 1033, 1045 (7th Cir. 1977), cert. denied, 434 U.S. 
875 (1977).
---------------------------------------------------------------------------

4. Section 317.2(d): ``Person''
    Section 317.2(c) of the initially proposed Rule defined the term 
``person'' to mean: ``any individual, group, unincorporated 
association, limited or general partnership, corporation, or other 
business entity.''\97\ PMAA and Navajo Nation were the only commenters 
to address this definition, and both agreed that the definition is 
appropriate.\98\ The Commission believes that this definition is 
consistent with the jurisdictional reach of the FTC Act,\99\ as well as 
with prior usage in other FTC rules.\100\ Therefore, the initially 
proposed definition of ``person'' is retained without modification and 
set forth in Section 317.2(d) of the revised proposed Rule.
---------------------------------------------------------------------------

    \97\ 73 FR at 48325.
    \98\ PMAA at 3 (``The definition[] of . . . `person' . . . 
seem[s] appropriate.''); Navajo Nation at 8 (adopting the FTC's 
proposed definition of ``person'' in its recommended rule text).
    \99\ See 73 FR at 48325.
    \100\ See, e.g., Telemarketing Sales Rule, 16 CFR 310.2(v); 
Disclosure Requirements and Prohibitions Concerning Franchising, 16 
CFR 436.1(n).
---------------------------------------------------------------------------

5. Section 317.2(e): ``Petroleum distillates''
    Section 317.2(d) of the initially proposed Rule defined ``petroleum 
distillates'' to mean ``(1) jet fuels, including, but not limited to, 
all commercial and military specification jet fuels, and (2) diesel 
fuels and fuel oils, including, but not limited to, No. 1, No. 2, and 
No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.''\101\ The 
initially proposed Rule also defined ``petroleum distillates'' to 
include ``finished fuel products, other than `gasoline,' produced at a 
refinery or blended in tank at a terminal.''\102\ Two commenters 
supported the proposed definition of ``petroleum distillates,''\103\ 
while another asked whether the definition of ``petroleum distillates'' 
included heavy fuel oils (e.g., No. 5 and No. 6 fuel oils).\104\ 
Another commenter argued that any final rule should reach biodiesel and 
other renewable fuels.\105\
---------------------------------------------------------------------------

    \101\ 73 FR at 48325.
    \102\ 73 FR at 48325.
    \103\ PMAA at 3 (``The definition[] of . . . `petroleum 
distillates' . . . seem[s] appropriate.''); Navajo Nation at 8 
(adopting the FTC's proposed definition of ``petroleum distillates'' 
in its recommended rule text).
    \104\ Sutherland at 7.
    \105\ ATA at 3.
---------------------------------------------------------------------------

    The definition of ``petroleum distillates'' now in revised proposed 
Rule Section 317.2(e) remains unchanged from the initially proposed 
Rule. The Commission clarifies that the term ``petroleum distillates'' 
includes middle distillate refinery fuel streams, and thus encompasses 
all product streams above heavy fuel oils, up to and including lighter 
products such as on-road diesel, heating oil, and kerosene-based jet 
fuels. The definition, therefore, does not include heavy fuel oils.
    As discussed in the definition of ``gasoline,'' the Commission 
tentatively has determined not to extend the definition of ``petroleum 
distillates'' to include renewable fuels, such as biodiesel. To do so 
would expand the reach of the revised proposed Rule beyond the 
products--``crude oil[,] gasoline or petroleum distillates''--expressly 
specified in Section 811 of EISA. The Commission further addresses the 
intended application of the revised proposed Rule to conduct 
implicating non-covered products, such as renewable fuels, in its 
discussion of the ``in connection with'' language in Section 
IV.D.2.a.2. below.
6. Section 317.2(f): ``Wholesale''
    Section 317.2 (e) of the initially proposed Rule defined the term 
``wholesale'' to mean ``purchases or sales at the terminal rack level 
or upstream of the terminal rack level. Transactions conducted at 
wholesale do not include retail gasoline sales to consumers.''\106\ A 
few commenters generally agreed with the Commission's proposed 
definition,\107\ and two commenters, MS AG and PMAA, expressly 
supported including sales at the terminal rack level.\108\ PMAA 
asserted that manipulation at the rack level would directly affect 
``the thousands of PMAA members whose trucks load at these terminal 
racks tens of thousand times each day.''\109\
---------------------------------------------------------------------------

    \106\ 73 FR at 48326.
    \107\ See, e.g., Navajo Nation at 8 (adopting the FTC's proposed 
definition of ``wholesale'' in its recommended rule text); PMAA at 3 
(``PMAA is in agreement with the Commission's definition of 
`wholesale' . . . .'').
    \108\ MS AG at 3; PMAA at 3; see also IPMA at 4 (agreeing that 
```wholesale' means purchases at the terminal rack or upstream of 
the terminal rack''); Platts (Kingston), Tr. at 154 (stating that 
``[w]hen I hear wholesale, I tend to think of [it] as rack'').
    \109\ PMAA at 3.
---------------------------------------------------------------------------

    Other commenters, however, opposed including transactions at or 
downstream of the terminal rack level, and they proposed revising the 
definition of ``wholesale'' to limit its meaning to purchases or sales 
of product in ``bulk'' quantities.\110\ A few commenters argued that, 
although the term by definition included rack sales, public policy 
considerations supported limiting its scope. These commenters contended 
that ``rack pricing decisions are qualitatively different from those 
that arise in market-based bulk transactions,''\111\ and that rack 
pricing practices were unlikely to affect overall price levels in 
markets served by a terminal or group of terminals.\112\ They further 
argued that applying the Rule to rack transactions ``could jeopardize 
the ability of wholesale suppliers to respond to market conditions,'' 
and would also impose significant compliance burdens on the 
industry.\113\
---------------------------------------------------------------------------

    \110\ API and NPRA, for example, suggested that the Commission 
limit the term ``wholesale'' to ``bulk purchases or sales in 
contract quantities of 20,000 barrels or more, delivered or received 
via pipeline, marine transport or rail, at or near a location for 
which a price publication firm publishes a reference price.'' API at 
30; NPRA at 30-31, see also SIGMA at 3 (suggesting that the 
Commission define ``wholesale'' to include only ``transactions 
involving quantities of product equal to or greater than the minimum 
pipeline tenders or barge volumes via which a terminal or terminal 
cluster receives supplies'').
    \111\ API at 29; NPRA at 30.
    \112\ SIGMA at 2 (contending that although ``[p]articular 
pricing practices at the rack level may have an impact on a 
particular supplier's customers,'' such practices would likely not 
``alter overall price levels in the markets served out of a terminal 
or terminal cluster''); see also API at 30; NPRA at 30 n.46 
(``Wholesale rack prices are limited to a relatively small 
geographic area.'').
    \113\ Additionally, API and NPRA argued that the Commission 
already has a price monitoring program for terminal rack pricing in 
place and it has not identified a ``problem at the wholesale rack 
level that would suggest a regulatory remedy is required.'' API at 
29-30; NPRA at 30.
---------------------------------------------------------------------------

    The Commission finds the arguments advocating the exclusion of rack 
sales from the definition of ``wholesale'' to be unpersuasive, and at 
this time tentatively has determined not to limit the definition to 
bulk volume sales. As the Commission stated in the NPRM, and as some 
commenters conceded, terminal rack sales are ``wholesale'' transactions 
as that term is commonly defined.\114\ Excluding rack sales from the 
definition would place the revised proposed Rule at odds with the 
express language of EISA, which directs the Commission to prohibit 
manipulative conduct in wholesale markets. Moreover, prohibited conduct 
may in fact occur at the terminal rack level in connection with 
wholesale petroleum transactions, to the detriment of consumers. Such a 
determination requires analysis on a case-by-case

[[Page 18314]]

basis. Furthermore, the inclusion in the revised proposed Rule of an 
explicit scienter requirement limiting the reach of the Rule to 
``knowing'' or ``intentional'' conduct should assuage commenter 
concerns about reaching rack transactions. Thus, the revised proposed 
Rule covers terminal rack sales.
---------------------------------------------------------------------------

    \114\ 73 FR at 48326; see NPRA at 30; API at 29-30 (stating that 
its reasons for excluding practices at the terminal rack level and 
below ``from the scope of the Rule are not definitional, but rather 
based on public policy'').
---------------------------------------------------------------------------

    The Commission has, however, modified the proposed definition of 
``wholesale'' in recognition of the differences that may exist in the 
patterns of distribution for crude oil, gasoline, and petroleum 
distillates.\115\ As the Commission noted in the NPRM, the term 
``wholesale'' may encompass one or both of the following concepts: (1) 
the sale of large quantities of product, and (2) the sale of a product 
for anticipated resale.\116\ With regard to the sale of products listed 
in Section 811, the Commission recognizes that crude oil is sold in 
bulk quantities independent of terminal racks. Similarly, large 
quantities of jet fuel are often sold directly to airlines at airports 
independent of any terminal rack. Therefore, the Commission is revising 
the proposed definition of ``wholesale'' to address these differences, 
clarifying that all bulk sales of crude oil and jet fuel--even when not 
for resale--are encompassed by the revised proposed definition.
---------------------------------------------------------------------------

    \115\ One commenter stated that the Commission's proposed 
definition ``leaves uncertainty as to the status of retail 
transactions that involve large end users.'' Sutherland at 7.
    \116\ A common definition of ``wholesale'' is ```the sale of 
goods in quantity, as to retailers or jobbers, for resale.''' See 73 
FR at 48326 (citing (http://dictionary.reference.com/browse/wholesale)) (emphasis added).
---------------------------------------------------------------------------

    Specifically, Section 317.2(f) of the revised proposed Rule defines 
``wholesale'' to mean ``(1) all purchases or sales of crude oil or jet 
fuel; and (2) all purchases or sales of gasoline or petroleum 
distillates (other than jet fuel) at the terminal rack level or 
upstream of the terminal rack level.'' As modified, this revised 
definition would not extend to retail sales of gasoline, diesel fuels, 
or fuel oils to consumers;\117\ therefore, the language in the 
originally proposed definition excluding such sales is now redundant 
and has been deleted.\118\
---------------------------------------------------------------------------

    \117\ See SIGMA at 1 (agreeing that any Section 811 rule should 
not apply to retail gasoline sales); NPRA at 29; API at 30.
    \118\ The definition of ``wholesale'' in the NPRM had stated 
that ``[t]ransactions conducted at wholesale do not include retail 
gasoline sales to consumers.'' 73 FR at 48326.
---------------------------------------------------------------------------

7. Other Suggested Definitions
    A few commenters suggested adding definitions to any final rule to 
clarify its scope and operation.\119\ Specifically, several commenters 
proposed definitions for the terms ``manipulative or deceptive device 
or contrivance,'' a phrase included in the text of Section 811.\120\ 
One commenter recommended that an FTC rule include a broad definition 
of the terms ``manipulative or deceptive device, scheme or 
contrivance'' that encompasses ``manipulative conduct that artificially 
distorts wholesale petroleum markets or undermines incentives to find 
and develop reserves of domestic crude oil.''\121\ Borrowing language 
from the NPRM, another commenter urged the Commission to define a 
``manipulative or deceptive act'' as an act that ``injects materially 
false or deceptive information into the marketplace.''\122\ One 
commenter proposed that any rule, regardless of scope, should define 
``manipulation [as] an act that is deceptive, that causes an effect on 
market prices, and [that] is intended by the actor to have such a 
result.''\123\
---------------------------------------------------------------------------

    \119\ See generally Van Susteren at 1 (noting that EISA provided 
neither a definition for ``market manipulation'' nor the specific 
elements that constitute a Section 811 violation).
    \120\ One commenter suggested using SEC Rule 10b-5 language to 
define this term. IPMA at 3-4 (contending ``that the [SEA] and SEC 
Rule 10b-5 definition of `manipulative device or contrivance' as 
`employ[ing] any device, scheme, or artifice to defraud' is 
appropriate in this case'').
    \121\ Navajo Nation at 3. Specifically, Navajo Nation 
recommended the following definition for ``manipulative device, 
scheme or contrivance'' be added: ``[C]onduct without substantial 
efficiency justification that is intended to artificially stimulate, 
depress or distort market prices or that foreseeably could 
artificially stimulate, depress, or distort market prices.'' Id at 
8.
    \122\ NPRA at 28 (agreeing ``fundamental[ly]'' with the FTC's 
definition of ``manipulative or deceptive act'' in the NPRM). NPRA 
suggested that the FTC further define the type of information 
injected into the market, by specifying that the information must be 
about important aspects of supply or demand. Id. at 21.
    \123\ Muris at 2; see also ISDA at 10 (stating that CEA legal 
precedent has defined ``manipulative'' as ```an intentional exaction 
of a price determined by forces other than supply and demand''' 
(quoting Frey v. CFTC, 931 F.2d 1171, 1175 (7th Cir. 1991)). But see 
NPRA (DeSanti), Tr. at 250-51 (arguing against the use of the CFTC's 
definition of ``market manipulation'').
---------------------------------------------------------------------------

    As described in greater detail in the discussion of Section 317.3 
below, the Commission believes that the conduct prohibition in the 
revised proposed Rule would give meaning to the term ``manipulative or 
deceptive devices or contrivances'' found in Section 811, obviating the 
need for an additional definition in the Rule itself. Moreover, 
modifications to the proposed Rule's language clarify the type of 
conduct that the revised proposed Rule would prohibit, providing better 
guidance to market participants about its scope. Consistent with its 
position in the NPRM, the Commission intends to focus on fraudulent and 
deceptive conduct that injects false information into market 
transactions.\124\ At this time, the Commission believes that it 
remains unnecessary to define either ``manipulative or deceptive device 
or contrivance'' or ``manipulative or deceptive act.''
---------------------------------------------------------------------------

    \124\ See Section IV.A. for a discussion of the Rule as an anti-
fraud rule.
---------------------------------------------------------------------------

D. Section 317.3: Prohibited Practices

1. Initial Proposed Rule
    Section 317.3 of the initially proposed Rule contained three 
subparts (a) - (c), which respectively would have made it unlawful for 
any person:
    (a) To use or employ any device, scheme, or artifice to defraud,
    (b) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made, 
in the light of the circumstances under which they were made, not 
misleading, or
    (c) To engage in any act, practice, or course of business that 
operates or would operate as a fraud or deceit upon any person.\125\
---------------------------------------------------------------------------

    \125\ 73 FR at 48326 (proposing language nearly identical to 
that employed in SEC Rule 10b-5); see also 17 CFR 240.10b-5.
---------------------------------------------------------------------------

    The NPRM discussed the scope and application of each subpart and 
articulated the elements of a cause of action under the proposed Rule. 
Commenters responded to the NPRM by discussing both the language of the 
proposed Rule and its proposed elements. Several industry commenters 
addressed the conduct provisions contained in proposed Section 
317.3(a)-(c). Some commenters believed that the conduct provisions were 
generally appropriate,\126\ and some expressed specific support for 
individual subparts. For example, PMAA advised that it would support 
the language used in proposed Section 317.3(a), as long as the proposed 
Rule also contained a scienter requirement.\127\ ATAA also supported 
proposed Section 317.3(c), noting that ``[t]his flexible standard is 
exactly the sort of general prohibition of illegality that the FTC has 
successfully enforced over its almost 100 year history.''\128\ In 
addition, some commenters agreed with

[[Page 18315]]

including general, rather than specific, conduct prohibitions in the 
proposed Rule.\129\
---------------------------------------------------------------------------

    \126\ See, e.g., CA AG at 2 (agreeing with the conduct 
provisions of the proposed Rule); MS AG at 2 (endorsing the 
Commission's proposed Rule); ATA at 2 (stating that the proposed 
Rule properly prohibits manipulation); see also SIGMA at 2 (``In 
particular, the Commission's decision to base its rule on Section 
10b-5 of the [SEA] properly ensures consumer protection while 
affording business owners a wealth of certainty with respect to 
their market practices.'').
    \127\ PMAA at 3.
    \128\ ATAA at 12.
    \129\ See, e.g., Sutherland at 2 (``We welcome the Commission's 
decision not to propose specific conduct obligations or other 
affirmative duties that superimpose government norms for the rules 
of the marketplace.''); ATA at 2 n.3 (``We support the FTC's attempt 
to preserve flexibility by issuing general conduct prohibitions so 
as to allow for adaptation to changing market conditions and to 
avoid a `laundry list of specifically proscribed conduct [that] 
could quickly become out of date.''' (quoting 73 FR at 48322-23)); 
ATAA at 11 (``[T]he proposed rule properly contains a broad anti-
fraud provision.''); see also Platts at 9 (``Platts generally agrees 
with a non-prescriptive approach for entities' participation in 
price formation processes.''). Although they did not endorse a 
``laundry list'' approach, a few other commenters sought to ensure 
that a rule would proscribe specific conduct as manipulative under a 
rule. See NPCA at 1; MPA at 2; IPMA at 3-4 (requesting that the 
Commission treat an oil company's decision to sell only gasoline 
pre-blended with ethanol at the terminal rack as a potentially 
manipulative practice).
---------------------------------------------------------------------------

    Most industry commenters, however, argued that a perceived lack of 
specificity about the conduct the proposed Rule would prohibit would 
lead to adverse consequences, such as a reduction in voluntary 
information disclosures by industry participants, and a reduction in 
the number of new participants entering the marketplace.\130\ For 
example, NPRA opposed the use of the phrase ``device, scheme, or 
artifice to defraud'' in proposed Section 317.3(a),\131\ arguing that 
the proposed Rule should ``identify more precisely the types of conduct 
that the FTC may target as market manipulation . . . to avoid the 
unintended chilling of procompetitive conduct.''\132\ Commenters also 
expressed concerns about applying proposed Section 317.3(c) to 
wholesale petroleum markets.\133\ One commenter argued that subpart (c) 
should only cover conduct that has an effect on the market, rather than 
on any individual person.\134\
---------------------------------------------------------------------------

    \130\ See, e.g., API at 9-10, 26 (arguing that the proposed Rule 
was overly broad and would prompt market participants to adopt 
compliance programs that restrict voluntary disclosures); ISDA at 9 
(arguing that market liquidity, particularly in times of greater 
market stress, would be adversely affected if ambiguous rule 
provisions artificially constrain ``critical market activities'' or 
dissuade potential market participants from entering the market); 
NPRA at 3 (``Market participants believe they will need to implement 
conservative compliance systems due to the uncertainty created by 
the Commission's proposal to apply SEC precedent to enforcement of 
the Rule . . . .''); Flint Hills at 3 (noting with approval the 
concerns raised by NPRA that the ``breadth of the proposed rule 
would create a significant amount of uncertainty as to what conduct 
may be captured by the Rule''); Plains at 3 (``Given . . . the 
uncertainties that will exist with respect to the [proposed Rule's] 
scope and applicability, the imposition of liability without any 
finding of an effect on the market or third parties will restrict 
legitimate market activity . . . .'').
    \131\ NPRA at 15-17 (arguing that the three elements of proof 
required for the proposed Rule, rather than the specific language of 
SEC Rule 10b-5, provide a better starting point for the development 
of an FTC rule).
    \132\ NPRA at 31. NPRA further recommended that the Commission 
add the language ``manipulative or deceptive'' to modify the phrase 
``device, scheme, or artifice to defraud'' in proposed Section 
317.3(a). Id. at 32.
    \133\ See, e.g., ISDA at 8 (noting that ``[w]hile this clause 
may be reasonably clear in the securities context in which it has 
been applied, it is not clear to ISDA's members what this would 
require of commercial participants in physical, wholesale petroleum 
markets'').
    \134\ See MFA (Young), Tr. at 45 (arguing that the language 
``any person'' in proposed Section 317.3(c) is overreaching); NPRA 
at 31.
---------------------------------------------------------------------------

    With respect to subpart (b) of the initially proposed Rule, 
commenters have generally supported its prohibition of untrue 
statements of material fact.\135\ Thus, in response to the ANPR, 
several commenters generally agreed that a rule should ban untrue 
statements because they interfere with well-functioning markets.\136\ 
Similarly, in response to the NPRM, many commenters and workshop 
participants agreed that the proposed Rule should prohibit materially 
false statements, provided that such statements affected the 
marketplace.\137\
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    \135\ See, e.g., Flint Hills at 3-4 (``[I]nstructing employees 
not to knowingly lie to their purchasers about supply conditions in 
order to drive up market prices draws a bright line that can be 
clearly communicated and audited without the need to limit 
legitimate conduct.'').
    \136\ Several ANPR commenters noted that reporting false 
information to private reporting services and to government agencies 
can be troublesome because market participants rely on information 
from private reporting services and government agencies to conduct 
business transactions. See, e.g., API, ANPR, at 50 (stating that 
firms rely on private reporting services to understand industry 
trends and as a basis for contract pricing and that providing false 
or misleading information to these services ``could be 
problematic''); Plains, ANPR, at 4 (urging the Commission to 
prohibit the dissemination of false or misleading information made 
with the intent to defraud); PMAA, ANPR, at 7 (stating that because 
its members rely on private and government data reports, the 
Commission should publish a rule that ensures the accuracy of this 
data); Muris at 10 (``Deliberate false reports of transaction 
details to influence a price index should be a violation of a 
manipulation rule.'').
    \137\ See, e.g., ISDA (Velie), Tr. at 41-42, 58 (agreeing that 
the Commission should focus on lies and other false statements if 
made with the specific intent to manipulate the market); MFA 
(Young), Tr. at 45 (agreeing that the dissemination of outright lies 
that cause an artificial market price should be prohibited); CFDR 
(Mills), Tr. at 48-49 (urging the Commission to only target false 
statements that act as a fraud on the marketplace rather than those 
made in bilateral negotiations between counterparties); API at 9 
(suggesting that the Rule be limited to ``intentionally deceptive or 
fraudulent statements or acts designed to manipulate a wholesale 
petroleum market''); PMAA at 3; see also ATA at 2 (stating that the 
Commission should go after ``[d]eceptive or manipulative practices . 
. . used to disseminate false information or omit material 
information that causes market participants to perceive a change in 
the supply or demand''); ATAA at 2 (``The FTC's efforts in 
preventing market manipulation and the providing of false 
information are an important part of addressing the nation's and the 
airline industry's energy crisis.''); CFA (Cooper), Tr. at 56-57 
(contending that the Commission should reach all false statements 
under the Rule, regardless of context, that have a potential to 
affect the market).
---------------------------------------------------------------------------

    By contrast, although one commenter endorsed the proposed Section 
317.3(b) prohibition of misleading statements through the omission of 
material facts,\138\ nearly all the other commenters who addressed 
proposed Section 317.3(b) opposed it. Commenters argued that 
prohibiting such omissions would not make sense in petroleum markets, 
because participants in wholesale petroleum markets--unlike securities 
market participants--have no legal obligation to disclose certain 
information to counter parties.\139\ They also argued that basing 
liability upon the failure to disclose material facts in wholesale 
petroleum markets would create confusion\140\ and chill legitimate 
business conduct.\141\ These commenters

[[Page 18316]]

asserted that the proposed Rule therefore would discourage companies 
from disclosing information voluntarily--in order to avoid liability 
for material omissions--and, as a consequence, would reduce the flow of 
information in petroleum markets and interfere with market efficiency 
and functions.\142\
---------------------------------------------------------------------------

    \138\ See PMAA at 3 (approving of the use of established 
securities law precedent regarding false material facts and 
omissions of material fact).
    \139\ See, e.g., NPRA at 7 (stating that, unlike securities 
markets, wholesale petroleum market participants do not have ``a 
duty to disclose to a counterparty the types of material, nonpublic 
information about [their] own compan[ies] with which Rule 10b-5 is 
concerned''); ISDA at 7 (noting that unlike securities markets, 
wholesale petroleum markets are not characterized by relationships 
that give rise to duties to disclose); API at 25 (``Permitting 
courts to base liability on failure to disclose facts . . . may make 
sense in the highly regulated securities industry, in which 
regulated parties often have access to material non-public 
information about the issuer that may affect the true value of the 
security, and therefore are governed by detailed disclosure 
obligations designed to protect unsophisticated investors.''); see 
also CFDR (Mills), Tr. at 129 (stating that in the securities arena, 
courts rely on the existence of fiduciary and other relationships to 
impose an affirmative duty on market participants to provide more 
information, and in the absence of such a relationship, participants 
do not have a duty to provide additional information).
    \140\ Commenters also asserted that to the extent disclosures 
are required for market participants to comply with an FTC rule, 
there may be conflicts with other laws. See, e.g., NPRA at 10 (``It 
would be inconsistent with established antitrust law for a market 
manipulation rule to have the perverse effect of requiring 
competitors to disclose to each other a wide range of competitively 
sensitive information . . . .''); Flint Hills (Hallock), Tr. at 126 
(stating that ``there can arise situations where . . . information 
exchanges [are] being encouraged [by the proposed Rule], whereas the 
antitrust laws would greatly discourage those sorts of information 
exchanges''); AOPL (Stuntz), Tr. at 176-77 (contending that if the 
Rule is applied to oil pipelines, the omissions requirement would 
conflict with the ICA).
    \141\ See, e.g., API at 26 (``By reducing the amount of 
information in the marketplace, the omissions standard set forth in 
the NPRM could have a serious and harmful impact on the efficiency 
of petroleum markets.''); CAPP at 2 (stating that the omissions 
language is likely to have a chilling effect because it is ambiguous 
in its application); Flint Hills at 3-4 (agreeing that the omissions 
provision is ambiguous in its application and would present 
compliance difficulties); NPRA at 33 (suggesting deletion of the 
omissions language because failing to do so ``would tend to chill 
procompetitive information disclosures due to a fear of liability 
for having made an incomplete or insufficiently caveated, not to 
mention simply mistaken, statement''); see also Muris at 12 (``[I]t 
is particularly important that the Commission identify with clarity 
omissions of information that would be actionable under the 
rule.'').
    \142\ See, e.g., Brown-Hruska at 7 (stating that unlike 
securities markets, ``[a] prohibition that may result in the 
prosecution of omissions discourages the collection and profitable 
use of market information in decisions regarding supply, 
transactions, and pricing [in commodities and physical petroleum 
markets] and could harm market efficiency and impair market 
function''); Flint Hills at 4 (stating that if the Rule covers 
omissions it will be difficult to design a compliance program that 
does not restrict legitimate conduct); NPRA at 13-14 (explaining 
that if the Commission prohibits omissions under the Rule, companies 
will instruct their employees to reveal less information in order to 
avoid potential liability). Commenters were also concerned that 
entities would use the omissions provisions to bring vexatious 
litigation. See, e.g., Flint Hills at 4 (stating that in-house 
counsels would advise their clients to ``reveal as little 
information as possible'' to avoid third-party challenges based on 
omissions and unintentional misstatements); NPRA at 10-11 
(expressing concern that a ```full disclosure' rule would distort [a 
company's] decisions about whether to disclose information that may 
be incomplete'' due to its fear of counterparty litigation); Brown-
Hruska at 8 (warning that an overbroad interpretation of the term 
``misleading'' in Section 317.3(b) ``is likely to give rise to ex 
post opportunistic behavior on the part of counterparties who did 
not possess the allegedly omitted information and are unhappy with 
the deal they struck'') (emphasis in original); see also API at 24 
(stating that the proposed Rule leaves ``open the possibility of 
liability arising from `incomplete' disclosures'').
---------------------------------------------------------------------------

2. Revised Proposed Rule
    Section 317.3 sets forth the conduct prohibited by the revised 
proposed Rule. Specifically, this provision states:
    It shall be unlawful for any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, to:
    (a) knowingly engage in any act, practice, or course of business--
including the making of any untrue statement of material fact--that 
operates or would operate as a fraud or deceit upon any person; or
    (b) intentionally fail to state a material fact that under the 
circumstances renders a statement made by such person misleading, 
provided that such omission distorts or tends to distort market 
conditions for any such product.\143\
---------------------------------------------------------------------------

    \143\ This provision of the revised proposed Rule, therefore, 
sets forth conduct that would be manipulative or deceptive, pursuant 
to Section 811.
---------------------------------------------------------------------------

    The revised proposed Rule would broadly prohibit fraudulent or 
deceptive conduct, which may take various forms, including the 
intentional omission of material information. The modifications to the 
conduct provisions in the initially proposed Rule are intended to 
clarify the type of conduct that likely would violate the Rule. First, 
the Commission has consolidated the conduct prohibitions language in 
Section 317.3 of the initially proposed Rule to more clearly and 
precisely denote the unlawful conduct it prohibits. Second, to address 
the concern that the proposed Rule would chill legitimate conduct, the 
revised proposed Rule explicitly sets forth a scienter standard for 
each of the two conduct provisions.\144\ Third, while the revised 
proposed Rule would also prohibit material omissions, the Commission 
has modified the prohibition to address specific concerns about the 
risk of deterring voluntary disclosures of information, by requiring a 
showing that the omission at issue distorts or tends to distort market 
conditions. With these modifications, the Commission believes the 
revised proposed Rule would serve the public interest by appropriately 
prohibiting manipulative conduct that injects false information into 
market transactions, without unnecessarily burdening legitimate 
business practices.
---------------------------------------------------------------------------

    \144\ As the Commission noted in the ANPR and the NPRM, 
``nothing in connection with this Section 811 [r]ulemaking, any 
subsequently enacted rules, or related efforts should be construed 
to alter the standards associated with establishing a deceptive or 
an unfair practice in a case brought by the Commission.'' 
Specifically, intent need not be shown to establish that a 
particular act or practice is deceptive or unfair, and therefore 
violates Section 5 of the FTC Act. See, e.g., FTC v. Bay Area 
Business Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005); FTC v. 
Freecom Communications, Inc., 401 F.3d 1192, 1202 (10th Cir. 2005); 
FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 573-74 (7th Cir. 1989). 
73 FR at 25619 n.55; 73 FR at 48322 n.61.
---------------------------------------------------------------------------

    Specifically, Section 317.3(a) of the revised proposed Rule would 
prohibit any conduct that operates or would operate as a fraud or a 
deceit, provided that the alleged violator engaged in the prohibited 
conduct knowingly; that is--as defined in the revised proposed Rule--
with extreme recklessness. Revised proposed Rule Section 317.3(b) 
separately would prohibit statements that are misleading because they 
both intentionally omit material facts and threaten the integrity of 
wholesale petroleum markets. In particular, Section 317.3(b) requires a 
showing that the alleged violator intends to mislead by 
``intentionally'' omitting material facts from statements where they 
are needed in order to render such statements not misleading. The 
intent requirement and the proviso that the omission threaten the 
integrity of a petroleum market are intended to address many 
commenters' concerns that the omissions provision in initially proposed 
Rule Section 317.3(b) would have chilled legitimate business conduct by 
failing to focus more precisely on prohibiting fraudulent and deceptive 
conduct likely to harm wholesale petroleum markets.
    The Commission does not intend the revised proposed Rule to 
prohibit inadvertent mistakes, unintended conduct, or legitimate 
conduct undertaken in the ordinary course of business.\145\ The revised 
proposed Rule also would not impose any recordkeeping 
requirements.\146\ In short, the revised proposed Rule would prohibit 
fraudulent or deceptive conduct in wholesale petroleum markets without 
unduly impeding beneficial market behavior.
---------------------------------------------------------------------------

    \145\ Consistent with its position in the NPRM, the Commission 
currently does not expect to impose specific conduct or duty 
requirements, such as a duty to supply product, a duty to provide 
access to pipelines or terminals, a duty to disclose, or a duty to 
update or correct information. In particular, the revised proposed 
Rule would not require covered entities to disclose price, volume, 
and other data to individual market participants, or the market at 
large, beyond any obligation that may already exist. See 73 FR at 
48326-27.
    \146\ See 73 FR at 48332.
---------------------------------------------------------------------------

    The following section discusses the modifications in Section 317.3 
and relevant comments. The RNPRM first discusses the meaning of the 
following phrases embedded in the preamble: ``directly or indirectly'' 
and ``in connection with.'' It then reviews the two conduct provisions, 
including in particular the scienter standard, prohibited conduct, and 
other concepts that are pertinent to each provision. The Commission 
seeks comments on the specific formulation of revised proposed Rule 
Section 317.3, and in particular on whether the Rule would effectively 
prohibit fraudulent and deceptive behavior in wholesale petroleum 
markets without unduly burdening legitimate business conduct.
a. Preamble Language
(1) ``Directly or Indirectly''
    In the NPRM, the Commission stated that ``[m]anipulative or 
deceptive conduct involving non-petroleum based commodities that 
directly or indirectly affect[s] the price of gasoline . . . may be the 
subject of Commission enforcement under the proposed Rule.'' One 
commenter, MFA, questioned the

[[Page 18317]]

correct interpretation of the phrase ``directly or indirectly,'' used 
in the preamble to Section 317.3 of the proposed Rule. MFA argued that 
Section 811 of EISA ``does not authorize the Commission to prohibit any 
misconduct that directly or indirectly affects wholesale gasoline 
prices.''\147\ Rather, according to MFA, ``[t]he phrase `directly or 
indirectly' modifies `use or employ' in Section 811, nothing more or 
less.''\148\
---------------------------------------------------------------------------

    \147\ MFA at 10.
    \148\ MFA at 11. MFA further argues that because ethanol is 
subject to futures trading and, thus, is ``a statutory `commodity' 
under the CEA,'' ethanol is subject to the exclusive jurisdiction of 
the CFTC and should be exempt from any FTC market manipulation rule. 
Id. This argument is addressed above in Section IV.B.
---------------------------------------------------------------------------

    The Commission intends that the phrase ``directly or indirectly''--
which originates in Section 811 of EISA\149\ and is also included in 
revised Section 317.3--delineates the level of involvement necessary to 
establish personal liability under the revised proposed Rule. In 
particular, it means that the revised proposed Rule will impose 
liability not only upon any person who directly engages in 
manipulation, but also against any person who does so indirectly. Thus, 
the Commission intends that the phrase ``directly or indirectly'' in 
the revised proposed Rule be interpreted and applied to prevent a 
person from engaging in the prohibited conduct, either alone or through 
others.
---------------------------------------------------------------------------

    \149\ ``It is unlawful for any person, directly or indirectly, 
to use or employ . . . .'' 42 U.S.C. 17301 (emphasis added).
---------------------------------------------------------------------------

(2) ``In Connection With''
    Section 811 authorizes the Commission to prohibit manipulative 
conduct undertaken ``in connection with'' the purchase or sale of crude 
oil, gasoline, or petroleum distillates at wholesale. In the NPRM, the 
Commission proposed to construe the phrase ``in connection with'' 
broadly, consistent with SEC legal precedent interpreting this 
language.\150\ The Commission continues to believe that the Rule should 
reach market manipulation that occurs in the wholesale purchase or sale 
of products covered by Section 811 (and defined in the revised proposed 
Rule)--and ``in connection with'' such purchases or sales--provided 
that there is a sufficient nexus between the prohibited conduct and the 
markets for these products.\151\
---------------------------------------------------------------------------

    \150\ In the NPRM, the Commission relied upon guidance from the 
Supreme Court decision in Zandford to conclude that the ``in 
connection with'' requirement is satisfied where fraudulent conduct 
coincides ``with a purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale.'' 73 FR at 48329 (citing SEC v. 
Zandford, 535 U.S. 813, 820 (2002)).
    \151\ See Zandford, 535 U.S. 813.
---------------------------------------------------------------------------

    The rulemaking record reflects commenter concerns about how the 
Commission might use the ``in connection with'' language to reach 
specific conduct or non-covered products. In particular, some 
commenters expressed concerns about whether the language might reach 
supply and operational decisions. API asserted that the SEC's broad 
interpretation of ``in connection with''--arising from the fact that 
the SEA was enacted ``to respond to the massive economic crisis of 1929 
. . .''--was inappropriate for the petroleum industry.\152\ Commenters 
also urged the Commission to limit any rule it publishes to statements 
or acts pertaining to ``specific wholesale petroleum transactions,'' 
and not to cover upstream statements or conduct, including supply or 
operational decisions.\153\ Otherwise, these commenters argued, an FTC 
rule would result in the Commission regulating those activities,\154\ 
thereby creating a substantial risk of disrupting pro-competitive 
activity in petroleum markets.\155\
---------------------------------------------------------------------------

    \152\ API at 27-28 (citing Zandford, 535 U.S. at 819).
    \153\ API at 30-32; NPRA at 33 (stating that the Commission 
should not interpret the ``in connection with'' language as reaching 
upstream conduct and statements, including operational and supply 
decisions); see also CFDR (Mills), Tr. at 218-19 (asserting that 
supply decisions without misleading statements do not otherwise rise 
to the level of a fraud).
    \154\ API also recommended that the Commission, ``at a minimum, 
make clear in the final Rule that a firm's ability to provide an 
objective business justification for the challenged supply decision 
should provide an affirmative defense to liability under the Rule.'' 
API at 32.
    \155\ See, e.g., NPRA at 33 (arguing that by reaching supply 
decisions under a rule, the Commission ``could seriously distort 
refiners' decision making and disrupt competitive activity in 
petroleum markets''); API (Long), Tr. at 214-15 (contending that the 
FTC's oversight of ordinary supply and operational decisions ``could 
have devastating effects on the market'').
---------------------------------------------------------------------------

    The Commission disagrees with the notion that the ``in connection 
with'' language should never reach supply or operational 
decisions,\156\ where there is a sufficient nexus between the conduct 
at issue and the purchase or sale of crude oil, gasoline, or petroleum 
distillates. The Commission emphasizes that this interpretation of the 
phrase ``in connection with'' would not require the Commission to 
regulate or otherwise second-guess market participants' legitimate 
supply and operational decision-making. The scienter standard clarifies 
in particular that the revised proposed Rule would not apply to conduct 
that appears in hindsight to have been simply an error or 
miscalculation, either because the actor did not knowingly engage in 
fraudulent or deceptive conduct, or because he or she did not 
intentionally mislead by omitting material facts from covered 
statements. Rather, the Commission would determine on a case-by-case 
basis whether to reach supply and operational decisions or any other 
type of conduct that is ``in connection with'' the markets for covered 
products.
---------------------------------------------------------------------------

    \156\ 73 FR at 48329; Zandford, 535 U.S. at 820.
---------------------------------------------------------------------------

    In addition, commenters raised concerns regarding the Commission's 
interpretation of the phrase ``in connection with'' with respect to 
products that are not listed in Section 811. Several commenters 
supported the Commission proposal to reach purchases and sales of non-
covered products, such as renewable fuels and blending components, 
under the Rule.\157\ For example, one commenter argued that renewable 
fuels--such as ethanol and biodiesel--are growing in significance as a 
result of federal and state government mandates to reduce dependence on 
foreign oil.\158\ Another commenter, however, opposed extending the 
Rule to include ethanol, as well as sugar, corn, and other commodities 
that are inputs into ethanol.\159\ This commenter argued that the 
language of Section 811 does not specifically list non-petroleum based 
commodities, and that the Commission is not authorized to reach 
them.\160\
---------------------------------------------------------------------------

    \157\ ATA at 3; IPMA at 4 (agreeing that manipulation of ethanol 
and other oxygenates should be covered where changes in ethanol 
prices directly or indirectly affect wholesale gasoline prices); MPA 
at 2; NPCA at 1; NPRA (Drevna), Tr. at 221-22 (contending that the 
Commission should ``absolutely'' consider blending components); 
SIGMA (Columbus), Tr. at 222-23 (agreeing that a rule should reach 
``[a]nything that's mandated as a component'').
    \158\ ATA asserted that the Commission's effort to address 
manipulation of energy markets will be incomplete if the Commission 
failed to address manipulation in markets for alternative fuels. ATA 
at 3; see also IPMA at 1-2 (stating that increasingly, ethanol or 
other oxygenates have been added to gasoline because of 
environmental concerns or other reasons); SIGMA (Columbus), Tr. at 
224 (``I assure you [that] ethanol is a mandated component in 
[gasoline] . . . .'').
    \159\ MFA at 11-12; MFA (Young), Tr. at 224 (arguing that 
Congress did not intend for corn and sugar--subcomponent parts--to 
be covered under the Rule).
    \160\ MFA contended that SEC precedent, upon which the 
Commission relies, has never used the ``in connection with'' 
requirement to reach collateral markets that may affect securities. 
Rather, MFA argues, the SEC has focused on securities markets. MFA 
at 10-11.
---------------------------------------------------------------------------

    The Commission intends to reach products--such as renewable fuels 
(e.g., ethanol or biodiesel) or blending components (e.g., alkylate or

[[Page 18318]]

reformate)--that are not specifically identified in Section 811 only if 
there is a sufficient nexus between conduct involving those products 
and wholesale petroleum markets for covered products. Renewable fuels 
and blending components are integral to the overall supply of finished 
motor fuels; thus, manipulating purchases or sales of these products 
may have the requisite nexus with wholesale petroleum markets.\161\ 
Under the revised proposed Rule, the Commission would determine on a 
case-by-case basis whether conduct in a market for a non-covered 
product is ``in connection with'' wholesale petroleum transactions.
---------------------------------------------------------------------------

    \161\ See NPRA (Drevna), Tr. at 225 (``[I]f you're going to let 
potentially 35 percent of the market out of the [regulation], what's 
the point?'').
---------------------------------------------------------------------------

    After reviewing the existing rulemaking record, the Commission 
clarifies that it does not plan to apply its revised proposed Rule to 
commodities whose predominant use is in non-petroleum products, or to 
commodities that are inputs for ethanol, such as corn and sugar. The 
connection between these commodities and wholesale petroleum markets 
would likely be too attenuated to satisfy the ``in connection with'' 
requirement of Section 811.
b. Section 317.3(a): General Anti-Fraud Provision
    Revised proposed Section 317.3(a) is a general anti-fraud 
provision, prohibiting any person from knowingly engaging in conduct, 
including the making of false statements of material fact, that 
operates or would operate as a fraud or deceit on any person. While the 
Rule initially proposed enumerated prohibited conduct in three separate 
subsections, revised proposed Section 317.3(a) now addresses prohibited 
conduct in a single provision that subsumes the remaining subsections, 
except for omissions of material facts, which are separately addressed 
by revised proposed Section 317.3(b).\162\ Revised proposed Section 
317.3(a) is substantially similar to Section 317.3(c)--and now also 
includes the prohibition on false statements previously contained in 
Section 317.3(b)--of the initial proposed Rule. In short, Section 
317.3(a) prohibits market participants from lying in connection with 
wholesale petroleum transactions.
---------------------------------------------------------------------------

    \162\ The Commission believes that, by treating omissions 
separately, market participants can more readily understand when 
alleged conduct violates revised proposed Rule Section 317.3(a).
---------------------------------------------------------------------------

    As revised, Section 317.3(a) would prohibit fraudulent or deceptive 
conduct that not only serves no legitimate purpose, but could also 
impair the efficient functioning of wholesale petroleum markets. 
Specific examples include (1) false public announcements of planned 
pricing or output decisions; (2) false statistical or data reporting; 
and (3) false statements in the context of bilateral or multilateral 
communications with any market participant or other person--who may 
serve as a conduit for the dissemination of the information, or who 
might act on the information--such as traders, suppliers, brokers, or 
agents; federal, state, or local governments; and government or private 
publishers.\163\ Section 317.3(a) would also prohibit individual 
transactions or courses of business that constitute fraudulent or 
deceptive conduct, such as wash sales, that are intended to disguise 
the actual liquidity or price of a particular asset or market for that 
asset.\164\
---------------------------------------------------------------------------

    \163\ See, e.g., SEC v. Rana Research, Inc., 8 F.3d 1358 (9th 
Cir. 1993) (seeking permanent injunctive relief alleging that 
defendant's press release contained materially false and misleading 
statements); SEC v. Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 
1997) (finding defendant liable under SEC Rule 10b-5 when defendant 
disseminated false information to the market through press releases 
and SEC filings);In the Matter of CMS Mktg. Serv. & Trading Co., 
Comm. Fut. L. Rep. (CCH) ] 29,634 (C.F.T.C. Nov. 25, 2003) (finding 
liability for the submission of false information to private 
reporting services); see also CFTC v. Delay, 2006 WL 3359076 (D. 
Neb. Nov. 17, 2006) (holding that the CFTC failed to prove that 
defendant knowingly delivered any false and misleading reports to 
the USDA on cattle sales under a charge of manipulation and 
attempted manipulation of the feeder cattle futures markets).
    \164\ See, e.g., SEC v. U.S. Envtl., Inc., 155 F.3d 107 (2d Cir. 
1998) (finding that the SEC's complaint sufficiently alleged that 
the defendant manipulated the market for a stock in violation of SEC 
Rule 10b-5 by engaging in wash sales and other deceptive conduct); 
In the Matter of Michael Batterman, 46 S.E.C. 304 (1976) (finding by 
consent that the defendant engaged in wash sales in violation of the 
securities laws); Wilson v. CFTC, 322 F.3d 555 (8th Cir. 2003) 
(affirming the CFTC's order finding that the defendant engaged in 
wash sales and imposing sanctions).
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(1) A Person Must ``Knowingly'' Engage in Conduct That Operates or 
Would Operate as a Fraud or Deceit
    As noted above, the Commission has modified the text of the revised 
proposed Rule to articulate explicitly the scienter standards which 
respectively apply to revised proposed Rule Section 317.3(a) and 
Section 317.3(b).\165\ In particular, the Commission has retained the 
scienter standard of extreme recklessness in the initially proposed 
Rule for revised proposed Rule Section 317.3(a). Section 317.3(a) of 
the revised proposed Rule now expressly provides that a person must 
engage in the proscribed conduct ``knowingly'' in order to violate 
subpart (a) of the Rule, and the term ``knowingly'' has been defined in 
the Rule to be coextensive with the extreme recklessness standard.\166\ 
Thus, consistent with its position in the NPRM, the intent requirement 
in revised proposed Section 317.3(a) would be satisfied by showing that 
the defendant acted with extreme recklessness; that is, specifically, 
that the violator both acted with an extreme departure from standards 
of ordinary care in the petroleum industry and either knew or must have 
known that his or her conduct created a danger of misleading buyers or 
sellers.\167\ The revised proposed Rule, including Section 317.3(a) of 
the Rule, would not extend to inadvertent conduct or mere 
mistakes.\168\
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    \165\ This represents a change from the initially proposed Rule, 
which, like SEC Rule 10b-5, lacked any specific reference to 
scienter in the rule text. In the NPRM, the Commission proposed to 
require scienter as one of three required elements of proof. 73 FR 
at 48328. The other proposed required elements were: (1) a showing 
of a manipulative or deceptive act; and (2) a showing that the 
conduct was undertaken ``in connection with'' the purchase or sale 
of a covered commodity at wholesale. 73 FR at 48327-29.
    \166\ See Section IV.C.3. for a definition of the term 
``knowingly.'' For purposes of the Rule, the Commission has chosen 
the term ``knowingly'' to denote extreme recklessness.
    \167\ Recognizing that ``the Courts of Appeals have adopted a 
number of different formulations as to precisely what constitutes 
reckless,'' the Commission proposed in the initial NPRM the 
recklessness standard articulated by the Seventh and District of 
Columbia Circuits. 73 FR at 48329 & n.131. See Sundstrand Corp. v. 
Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (defining 
reckless conduct as a ```highly unreasonable omission, involving not 
merely simple, or even inexcusable negligence, but an extreme 
departure from the standards of ordinary care, and which presents a 
danger of misleading buyers or sellers that is either known to the 
defendant or is so obvious that the actor must have been aware of 
it''' (citing Franke v. Midwestern Oklahoma Development Authority, 
CCH Fed. Sec. L. Rep. ] 95,786, at 90,850 (W.D. Okl. 1976)); SEC v. 
Steadman, 967 F.2d 636, 641-42 (D.C. Cir. 1992) (adopting 
Sundstrand's recklessness standard).
    \168\ As the Commission noted in the NPRM, FERC adopted a 
similar approach in its interpretation of its rule, noting that 
``[t]he final rule is not intended to regulate negligent practices 
or corporate mismanagement, but rather to deter or punish fraud in 
wholesale energy markets.'' 73 FR 48328 n. 123 (quoting 71 FR at 
4245-4246).
---------------------------------------------------------------------------

    As a threshold matter, nearly every commenter who addressed the 
issue supported requiring some level of intent.\169\ However, most 
commenters

[[Page 18319]]

opposed permitting a showing of recklessness to satisfy the scienter 
requirement.\170\ They first contended that while recklessness may be 
an appropriate standard to employ in regulated securities markets--
where many of the covered parties are in a fiduciary relationship with 
their clients--it is inappropriate in petroleum markets, where business 
relationships are generally unregulated and where parties generally owe 
no fiduciary duties to each other.\171\ Second, commenters worried that 
courts grappling with cases brought under the proposed Rule might apply 
the lowest standard of recklessness because of the variety of meanings 
associated with the term in different legal contexts.\172\ These 
commenters argued that requiring only a showing of recklessness--
coupled with what they characterized as a vague NPRM prohibition of 
``manipulation''--would permit the prohibition of some neutral or 
procompetitive conduct, and introduce uncertainty as to the conduct 
covered by a final rule.\173\ Third, commenters argued that, if market 
participants were subject to liability under the proposed Rule for 
reckless conduct, they might choose to remain silent--in order to avoid 
liability for misstating or omitting a material fact--and thus reduce 
the volume of information available for price discovery in petroleum 
markets.\174\
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    \169\ See, e.g., NPRA at 19-20 (suggesting that a specific 
intent requirement be incorporated into the text of any rule); CAPP 
at 1 (supporting a scienter requirement); API at 3 (``API supports 
the Commission's proposal to make scienter a requirement of any rule 
adopted under Section 811.''); CA AG at 2-3 (supporting a scienter 
requirement); CFDR at 3 (``Relevant legal authorities characterize 
market manipulation as a species of fraud that connotes fraudulent 
conduct specifically intended to corrupt the integrity of market 
pricing processes through rigged prices or fictitious trading . . . 
.''); Muris at 2 (observing that the statutory language and 
legislative history of EISA point to the SEC, the FERC, and the CFTC 
as relevant regulatory models, ``all of which require proof of 
scienter''); PMAA at 3-4 (supporting a scienter requirement). But 
see Navajo Nation at 5 n.5 (asserting that a scienter requirement 
makes the proposed Rule burdensome).
    \170\ See, e.g., ISDA (Velie), Tr. At 12-13 (``[W]e would ask 
the Commission to reconsider its use of a recklessness standard.''); 
Flint Hills (Hallock), Tr. at 83 (``The recklessness standard is one 
that gives us great pause in terms of trying to create internal 
compliance policies.''); Sutherland at 5 (``Whatever the 
appropriateness of [the recklessness] standard in the SEC context . 
. . drawing inferences of misconduct based on imputed knowledge 
rather than actual intent is not a sound regulatory exercise when 
applied to the prevention of market manipulation in the commodity 
markets . . . .''); see also Pirrong Tr. at 114-15 (asserting that a 
recklessness standard could capture certain conduct that should not 
be captured, and that would not be captured by a specific intent 
standard); Brown-Hruska at 8 (``In order to encourage pro-
competitive behavior, it is important that the standard for 
liability should be no less than specific intent . . . .'').
    \171\ See, e.g., API at 4 (``Although a recklessness standard 
may be appropriate in the highly regulated securities context, with 
its fiduciary duties and strict disclosure requirements, it is not 
suited to wholesale petroleum markets.''); NPRA at 18-19 (explaining 
that ``[t]he application of a `recklessness' standard may make sense 
in a securities context where parties owe each other fiduciary 
duties or are in other relationships of trust or confidence,'' but 
not in wholesale petroleum markets, in which clear standards of care 
do not exist between sophisticated market participants); Sutherland 
at 5 (stating that the recklessness standard may be appropriate for 
securities markets but not for commodity markets ``where buyers and 
sellers do not owe one another fiduciary duties''); Plains at 2-3 
(explaining that the recklessness standard in the NPRM is 
inapplicable to wholesale petroleum markets where ``there is no 
presumption that one market participant owes any duties to its 
counterparties''); ISDA at 4 (``Because the prohibitions of SEC Rule 
10b-5 are derived from statutory duties that do not exist in the 
wholesale commodities markets, many market participants cannot 
determine what behavior (other than false or misleading statements) 
may be prohibited . . . .'').
    \172\ See, e.g., API at 3 (asserting that recklessness is a 
``more malleable standard''); CFDR (Mills), Tr. at 92-95 (asserting 
that recklessness would create uncertainty as to how the law would 
be applied).
    \173\ See, e.g., Plains at 3 (``[G]iven the distinctions between 
the securities markets and the crude oil markets, a recklessness 
standard will be ineffective in preventing or prosecuting actual 
fraud and will lead only to uncertainty and confusion as to the type 
of conduct that is prohibited.''); NPRA at 19 (``The application of 
a `recklessness' standard in [the wholesale petroleum market] 
context would create confusion and concern about how to control and 
monitor the thousands of wholesale petroleum transactions that take 
place every day . . . .''); API at 16-17 (``Incorporation of a 
recklessness standard into the proposed Rule therefore would require 
market participants to guard against the possibility that the 
Commission (or courts) would base liability on conduct that falls 
far short of intentional wrongdoing.''); ISDA at 4 (stating that a 
recklessness standard would create uncertainty); see also Plains at 
3 (explaining that the proposed Rule's lack of manipulative effect 
requirement, ``when coupled with a `recklessness' standard . . . 
could render unlawful an unintentional act with no consequences''). 
But see SIGMA at 2 (``[T]he Commission's decision to base its rule 
on Section 10b-5 of the [SEA] properly ensures consumer protection 
while affording business owners a wealth of certainty with respect 
to their market practices.'').
    \174\ See, e.g., API (Long), Tr. at 111 (asserting that a 
recklessness standard would discourage voluntary price reporting 
thus leading to ``information starved'' markets); Brown-Hruska at 8 
(``A standard that allows liability for mere recklessness further 
discourages disclosure of information . . . .''); Flint Hills 
(Hallock), Tr. at 83-84 (asserting that a recklessness standard 
would result in entities limiting exchanges of information and 
reporting to governmental agencies); CFDR (Mills), Tr. at 93-95 
(asserting that a recklessness standard would increase the 
likelihood for companies to withhold information needed for price 
discovery); see also Argus at 2 (``Absent a specific intent 
requirement, less transactional data will reach the index publisher, 
less data will enter the price formation process, and an increased 
chance of distortion in the indices produced may result.''). See 
generally Platts (urging the Commission not to discourage market 
activities that aid in price discovery).
---------------------------------------------------------------------------

    Many of these commenters urged the Commission to adopt the higher 
scienter standard of specific intent, and to include this requirement 
in the language of any final rule.\175\ In their view, a specific 
intent standard is necessary to protect petroleum market participants 
who act reasonably and in good faith. By contrast, CA AG supported the 
proposed recklessness standard, maintaining that requiring a showing of 
specific intent would preclude challenges to ``reckless conduct even if 
it had extremely detrimental effects.''\176\
---------------------------------------------------------------------------

    \175\ See, e.g., API (Long), Tr. at 20 (supporting a specific 
intent standard); Argus at 2 (supporting a specific intent 
requirement); Brown-Hruska at 8 (``[I]t is important that the 
standard for liability should be no less than specific intent to 
manipulate market prices.''); CFDR at 6-7 (asserting that a specific 
intent standard would help to harmonize the legal standards employed 
by the FTC and CFTC, promoting ``fairness and reduc[ing] regulatory 
and legal uncertainty''); Flint Hills (Hallock), Tr. at 174 
(advocating for specific intent as an element of the Rule); ISDA at 
3-4 (encouraging the Commission to require proof of specific 
intent); Muris at 13 (urging the Commission to require ``evidence of 
specific intent to manipulate the price''); Sutherland at 4-5 
(urging the Commission ``to require proof of specific intent''); 
NPRA at 17-18 (``[Specific intent] would give specific guidance to 
industry and provide FTC staff with objective evidence to which it 
can look to prove market manipulation. . . .'').
    \176\ CA AG at 2-3; see also CFA (Cooper), Tr. at 24-25 (arguing 
that the recklessness standard protects consumer); MS AG at 3 
(supporting a recklessness standard); CAPP at 1 (asserting that by 
tying the scienter standard to SEC precedent, the Commission would 
afford market participants a measure of certainty); SIGMA at 2 
(supporting the proposed Rule's scienter requirement); PMAA at 3 
(supporting the proposed Rule's scienter requirement).
---------------------------------------------------------------------------

    The Commission continues to believe that an extreme recklessness 
standard is appropriate for the general anti-fraud provision in revised 
proposed Section 317.3(a). The scienter standard included in revised 
proposed Section 317.3(a) is consistent with analogous judicial 
interpretations of the statutory scienter requirement for SEC Rule 10b-
5.\177\ Recognizing that the Courts of Appeals have adopted several 
formulations as to precisely what constitutes recklessness, the 
Commission has defined the term ``knowingly'' to conform to the 
recklessness standard articulated by the Seventh and District of 
Columbia Circuits.\178\ Thus, establishing

[[Page 18320]]

recklessness requires evidence from which it can reasonably be inferred 
that the violator both acted with an extreme departure from standards 
of ordinary care (using a reasonable market participant standard) and 
either knew or must have known that its conduct created a danger of 
misleading buyers or sellers. Although the Commission recognizes that 
wholesale petroleum markets are not characterized by the same degree of 
regulation as the securities markets, the Commission believes that the 
obligation on market participants not to engage in any fraudulent or 
deceptive act, practice, or course of business in an extremely reckless 
manner-- regardless of other defined duties that may exist in other, 
more extensive regulated markets--is clear.
---------------------------------------------------------------------------

    \177\ Addressing the language of SEC Rule 10b-5, the Supreme 
Court held that an intent requirement is ``strongly suggest[ed]'' 
where statutory language prohibits a ``manipulative or deceptive'' 
``device or contrivance.'' Ernst & Ernst v. Hochfelder, 425 U.S. 
185, 197 (1976). The prohibitions language in Section 10(b) of the 
SEA is nearly identical to that in Section 811 of EISA. See 42 
U.S.C. 17301; 17 C.F.R. 240.10b-5. As the Commission noted in the 
initial NPRM, most appellate courts that have considered the issue 
have concluded that extreme recklessness can satisfy Ernst's 
requirement of ``intentional or wilful'' conduct for the purposes of 
SEA 10(b) and Rule 10b-5. See 73 FR at 48328 & n.130 and the cases 
cited therein.
    \178\ The Court of Appeals for the Seventh Circuit has defined 
reckless conduct as a ``highly unreasonable [act or] omission, 
involving not merely simple, or even inexcusable negligence, but an 
extreme departure from the standards of ordinary care, and which 
presents a danger of misleading buyers or sellers that is either 
known to the defendant or is so obvious that the actor must have 
been aware of it.'' Sundstrand Corp. v. Sun Chemical Corp., 553 F. 
2d 1033, 1045 (7th Cir. 1977), cert. denied, 434 U.S. 875 (1977) 
(quoting Franke v. Midwestern Oklahoma Development Authority, CCH 
Fed. Sec. L. Rep. ] 95,786 at 90,850 (W.D. Okl. 1976)). The Court of 
Appeals for the District of Columbia Circuit relied upon Sundstrand 
Corp. to establish the ``extreme recklessness'' scienter standard 
applicable to SEC Rule 10b-5. See SEC v. Steadman, 967 F.2d 636, 
641-42 (D.C. Cir. 1992) (citing Sundstrand Corp., 553 F.2d at 1045); 
73 FR at 48329.
---------------------------------------------------------------------------

    Articulating the required intent standard in the text of revised 
proposed Rule Section 317.3(a) should provide greater certainty to the 
business community as to the application of any final rule, making it 
less likely to inadvertently chill beneficial conduct. Moreover, the 
revised proposed Rule would not reach inadvertent conduct or mere 
mistakes. Thus, the Commission does not believe that prohibiting 
fraudulent or deceptive conduct is likely to reduce voluntary reporting 
and disclosures.\179\ As there is no legitimate basis for engaging in 
conduct that would operate as a fraud or deceit upon any person, the 
Commission tentatively concludes that requiring a showing of 
``knowing'' conduct is the appropriate scienter standard for revised 
proposed Rule Section 317.3(a).
---------------------------------------------------------------------------

    \179\ Although the Commission never stated that the initially 
proposed Rule would reach such conduct, comments as well as 
discussion at the public workshop revealed significant confusion on 
this point.
---------------------------------------------------------------------------

(2) Materiality Standard
    Section 317.3(a) of the revised proposed Rule prohibits conduct 
that operates or would operate as a fraud or deceit, specifically 
``including the making of any untrue statement of material fact.'' The 
NPRM set forth a standard for materiality under the proposed Rule, 
providing that, ``[c]onsistent with securities law, a fact is material 
if there is a substantial likelihood that a reasonable market 
participant would consider it in making its decision to transact 
because the material fact significantly alters the total mix of 
information available.''\180\ NPRA was the only commenter to address 
the concept of materiality specifically, and it recommended defining 
the term ``material fact'' to clarify that only facts that a reasonable 
market participant would consider important in making a decision to 
transact are material.\181\ The Commission agrees and anticipates using 
a materiality standard that focuses on a fact that a reasonable market 
participant would consider important in making a decision to transact 
because such information significantly alters the total mix of 
information available.\182\
---------------------------------------------------------------------------

    \180\ 73 FR at 48326.
    \181\ NPRA at 28-29 (citing TSC Indus., Inc. v. Northway, Inc., 
426 U.S. 438, 450 (1976)). NPRA also recommends that the rule 
``specify that the materially false or deceptive information must be 
about important aspects of supply or demand.'' NPRA at 20-21. This 
change, NPRA argues, would provide useful compliance guidance to 
industry, without being ``overly restrictive, because many types of 
information may involve important aspects of supply or demand.'' 
NPRA at 21.
    \182\ See Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) 
(```[A]n omitted fact is material if there is a substantial 
likelihood that a reasonable shareholder would consider it important 
in deciding how to vote.''') (quoting TSC Indus., Inc. v. Northway, 
Inc., 426 U.S. 438, 449 (1976)).
---------------------------------------------------------------------------

(3) Other Language in Section 317.3(a)
    As discussed above, revised proposed Rule Section 317.3(a), like 
the proposed Rule, prohibits misrepresentations of fact because such 
misrepresentations are a clear example of fraudulent or deceptive 
conduct. The Commission has therefore added the phrase ``the making of 
any untrue statement of material fact'' in revised proposed Section 
317.3(a) to make this prohibition clear.\183\ Many commenters and 
workshop participants agreed that such conduct harms the marketplace 
and should be prohibited. Prohibiting misrepresentations of material 
fact is further supported by the enforcement approach of other 
agencies; thus, for example, the CFTC challenges and seeks to prohibit 
such misrepresentations in commodities markets.\184\
---------------------------------------------------------------------------

    \183\ The NPRM noted that this provision of the proposed Rule 
would provide a clear ban on ``the reporting of false or misleading 
information to government agencies, to third-party reporting 
services, and to the public through corporate announcements.'' 73 FR 
at 48326. Congress gave the Commission authority under Section 812, 
a separate provision from Section 811, to prohibit any person from 
reporting information related to the wholesale price of petroleum 
products only if it is required by law to be reported to a federal 
department or agency. The prohibitions embodied in Section 812 
became effective with the enactment of EISA on December 19, 2007. 
See 42 U.S.C. 17302.
    \184\ See, e.g., In the Matter of CMS Mktg. Serv. & Trading Co., 
Comm. Fut. L. Rep. (CCH) ] 29,634 (C.F.T.C. Nov. 25, 2003) (finding 
liability for the submission of false information to private 
reporting services); see also CFTC v. Delay, 2006 WL 3359076 (D. 
Neb. Nov. 17, 2006) (holding that the CFTC failed to prove that 
defendant knowingly delivered any false and misleading reports to 
the USDA on cattle sales under a charge of manipulation and 
attempted manipulation of the feeder cattle futures markets); SEC v. 
Rana Research, Inc., 8 F.3d 1358 (9th Cir. 1993) (seeking permanent 
injunctive relief alleging that defendant's press release contained 
materially false and misleading statements); SEC v. Softpoint, Inc., 
958 F. Supp. 846 (S.D.N.Y. 1997) (finding defendant liable under SEC 
Rule 10b-5 when defendant disseminated false information to the 
market through press releases and SEC filings).
---------------------------------------------------------------------------

    The Commission received comments on the meaning of the phrase 
``would operate as a fraud or deceit.''\185\ The Commission clarifies 
that the phrase ``would operate as a fraud'' means only that the 
revised proposed Rule prohibits conduct that would defraud or deceive 
another person, whether or not the impact of the prohibited conduct had 
yet been manifested.\186\
---------------------------------------------------------------------------

    \185\ In the NPRM, the Commission also sought to clarify that 
the language ``operates as a fraud'' did not negate the requirement, 
present in securities law precedent, that a showing of scienter was 
necessary to prove a violation of this subsection. 73 FR at 48327.
    \186\ 73 FR at 48327.
---------------------------------------------------------------------------

c. Section 317.3(b): Omission of Material Information Provision
    Revised proposed Rule Section 317.3(b) addresses fraudulent or 
deceptive statements that are misleading as a result of the intentional 
omission of material facts, where that omission distorts or tends to 
distort market conditions for a covered product. Specifically, revised 
proposed Section 317.3(b) would make it unlawful for any person to 
``intentionally fail to state a material fact that under the 
circumstances renders a statement made by such person misleading, 
provided that such omission distorts or tends to distort market 
conditions for any such product.'' Material omissions from a statement 
that is otherwise literally true may, under the circumstances present 
at the time the statement is made, render that statement 
misleading.\187\ Thus, the Commission believes that prohibiting 
intentional omissions of material facts that distort or tend to distort 
market conditions is consistent with the intent of EISA and with the 
Commission's larger mandate to protect consumers and to preserve 
competition.\188\
---------------------------------------------------------------------------

    \187\ See McMahan & Co. v. Wherehouse Ent., Inc., 900 F.2d 576, 
579 (2d Cir. 1990) (``Some statements, although literally accurate, 
can become, through their context and manner of presentation, 
devices which mislead investors.'').
    \188\ In addition, any omission that is part of a fraudulent or 
deceptive act, practice, or course of business would violate revised 
proposed Section 317.3(a). See, e.g., In the Matter of A.J. White & 
Co., File No. 8-11962, 1975 SEC LEXIS 2564, at *61-63 (Jan. 21, 
1975) (finding defendants liable under SEC Rule 10b-5 for, inter 
alia, engaging in a course of conduct that operated as a fraud on 
purchasers of a stock offering by means of untrue statements and 
material omissions). This is consistent with the more general 
principle that any otherwise lawful act, if part of an unlawful 
course of business, nevertheless may be actionable. See Illinois ex 
rel. Madigan v. Telemarketing Assocs., Inc., 538 U.S. 600, 606 
(2003) (upholding a fraud claim when the facts presented a lawful 
``nondisclosure [of information] accompanied by intentionally 
misleading statements designed to deceive the listener'').

---------------------------------------------------------------------------

[[Page 18321]]

    The Commission has modified this component of Section 317.3(b) of 
the initially proposed Rule to address concerns raised by commenters 
about that section's breadth of coverage, and its potential to chill 
pro-competitive or pro-consumer behavior.\189\ Many commenters argued 
that while the omissions prohibition language of SEC Rule 10b-5 may be 
appropriate in securities markets, it is not appropriate in wholesale 
petroleum markets, owing to fundamental differences between the 
markets.\190\ Cognizant of these concerns, revised proposed Rule 
Section 317.3(b) now includes an express scienter requirement that 
limits its reach to intentional conduct. The provision also now 
requires a showing that the omission at issue ``distorts or tends to 
distort market conditions for any [covered] product.'' Thus, Section 
317.3(b) would prohibit intentionally omitted information that would 
mislead other market participants, public officials, or the market at 
large, such as material omissions made in statements to officials 
during a national emergency.
---------------------------------------------------------------------------

    \189\ Section 317.3(b) of the initially proposed Rule would have 
made it unlawful for any person to ``omit to state a material fact 
necessary in order to make the statements made, in the light of the 
circumstances under which they were made, not misleading.''
    \190\ See, e.g., API at 25 (stating that unlike wholesale 
petroleum markets, securities markets are ``are governed by detailed 
disclosure obligations designed to protect unsophisticated 
investors''); Muris at 2 (urging the FTC to ``avoid importing broad 
disclosure requirements from highly regulated markets that simply 
have no place in wholesale petroleum markets''); NPRA at 4 (arguing 
that the full disclosure rationale underlying SEC Rule 10b-5 does 
not fit wholesale petroleum markets); Plains at 3 (stating that in 
the crude oil markets, unlike securities markets, ``there is no 
presumption that one market participant owes any duties to its 
counterparties that would require disclosure of any information'').
---------------------------------------------------------------------------

    Revised proposed Rule Section 317.3(b) would not, however, impose 
an affirmative duty to disclose information. Rather, the provision 
would apply if ``a covered entity voluntarily provides information--or 
is compelled to provide information by statute, order, or regulation--
but then fails to disclose a material fact, thereby making the 
information provided misleading.''\191\ This is consistent with legal 
precedent establishing that once an entity has decided to speak, it 
must do so truthfully and accurately, and it may have to provide 
additional information to ensure that previously provided information 
is truthful.\192\ Some commenters argued that the Commission should 
clarify that a rule will not require them to release commercially 
sensitive information, such as information regarding supply 
availability.\193\ For example, Muris urged the Commission not to reach 
``pure omissions'' under the Rule, which ``arise when a seller is 
silent `in circumstances that do not give any particular meaning to his 
silence.'''\194\ The Commission does not intend, under the revised 
proposed Rule, either to prohibit dealings undertaken in the ordinary 
course of business that are not intended to defraud or to deceive, or 
to impose disclosure obligations on market participants unless the 
omission of material fact is made with the intent to deceive and those 
omissions are of the type that distort or tend to distort market 
conditions.
---------------------------------------------------------------------------

    \191\ 73 FR at 48327.
    \192\ See City of Monroe Employees Retirement System v. 
Bridgestone Corp., 399 F.3d 651, 670 (6th Cir. 2005) (stating that 
companies are generally under no obligations to disclose their 
expectations for the future to the public; however if a company 
chooses to volunteer such information, ```courts may conclude that 
the company was obliged to disclose additional material facts . . . 
to the extent that the volunteered disclosure was misleading''') 
(quoting Helwig v. Vencor, Inc., 251 F.3d 540, 564 (6th Cir. 2001) 
(en banc)); see also Plotkin v. IP AXESS Inc., 407 F.3d 690 (5th 
Cir. 2005) (finding that material omissions from a company's press 
release rendered that press release misleading regardless of the 
existence of a fiduciary or other legal relationship).
    \193\ See, e.g., API (Long), Tr. at 180; NPRA at 11-12.
    \194\ Muris at 12 (quoting In re Int'l Harvester, 104 F.T.C. 
949, 1059 (1984)).
---------------------------------------------------------------------------

    The Commission seeks additional comment and information on this 
issue, including responses to specific questions set forth in Section 
IV.I. of this Notice, to enable it to determine whether the alterations 
to the omissions provision are sufficiently tailored to prohibit 
conduct that threatens the integrity of wholesale petroleum markets 
without imposing unnecessarily high compliance costs on industry 
participants.
(1) Scienter Standard: A Person Must ``Intentionally'' Mislead By 
Omitting Material Information
    Sections 317.3(b) of the revised proposed Rule expressly provides 
that a person must engage in the proscribed conduct ``intentionally'' 
in order to violate the Rule. The Commission tentatively has modified 
the scienter standard for the omissions provision in this manner to 
address commenter concerns that, in the absence of industry regulatory 
obligations, an FTC rule might reduce voluntary reporting and 
disclosures, and to clarify that this provision would not reach 
inadvertent conduct or mere mistakes.\195\ To that end, establishing a 
violation of revised proposed Rule Section 317.3(b) would require 
establishing that the actor in question intended to mislead by making a 
statement that omitted material facts. This approach represents a 
different scienter standard than the showing of extreme recklessness 
required to establish a violation of revised proposed Rule Section 
317.3(a). This standard is also different than the specific intent 
standard proposed by some commenters. In particular, this approach 
should not be read to require a showing that the person intended to 
influence market conditions. Rather, proving a violation of revised 
proposed Rule Section 317.3(b) would require proof that the alleged 
violator intended to mislead--regardless of whether he or she 
specifically intended to affect market prices (e.g., specific intent)--
and regardless of whether the conduct was likely to succeed in 
defrauding or deceiving the target.\196\ Conversely, conduct that is 
the product of reckless or negligent behavior would not violate revised 
proposed Rule Section 317.3(b).
---------------------------------------------------------------------------

    \195\ Although the Commission never stated that the initially 
proposed Rule would reach such conduct, comments as well as 
discussion at the public workshop revealed significant confusion on 
this point.
    \196\ However, Section 317.3(b) separately requires that an 
intentional, material omission be of the kind that distorts or tends 
to distort market conditions for any such product. See Section 
IV.D.2.c.2. below.
---------------------------------------------------------------------------

    This formulation of the scienter requirement should eliminate 
concern about which of the various judicial interpretations of the 
``recklessness'' standard under securities law would have applied to 
the omissions provision in the proposed Rule. The Commission recognizes 
commenter concerns that the initially proposed omissions provision 
would have imposed on wholesale market participants the obligation to 
know whether a person would likely be defrauded or deceived by the 
conduct at issue, which could be difficult. At the same time, using the 
word ``intentionally'' in combination with the specific conduct 
prohibition language in revised proposed Rule Section 317.3(b) 
simplifies the evidentiary burden required to prove a violation, 
thereby reducing the potential for judicial confusion and clarifying 
the compliance standard for market participants. The Commission may 
consider and rely upon both direct and circumstantial evidence of the 
intent to mislead by a material omission to establish that an alleged 
violator possessed the requisite level of intent.

[[Page 18322]]

(2) The Omission of Material Information Must Distort or Tend to 
Distort Market Conditions For a Covered Product
    The Commission has added limiting language to the omissions 
provision in revised proposed Rule Section 317.3(b), so that a 
statement made misleading by reason of the intentional omission of a 
material fact violates the provision only if it ``distorts or tends to 
distort market conditions'' for any covered product.\197\ The 
Commission recognizes that identifying statements that are 
unambiguously misleading by dint of a material omission may be 
difficult in wholesale petroleum markets and create uncertainty within 
the business community about the Rule's application. Thus, an unbounded 
omissions provision could have an unintended chilling effect on normal 
business activity, and it could unnecessarily raise the costs of 
carrying out normal business activity in order to avoid potential 
litigation risks. Thus, in addition to modifying the scienter standard 
to require a showing of intentional conduct, the Commission believes 
that Section 317.3(b) should focus on misleading statements that are of 
sufficient import or scope to distort or tend to distort the market 
conditions that guide market participants' decision-making.\198\ This 
will enable the Commission to direct its enforcement efforts against 
those instances of misconduct that are most likely to injure the 
integrity of market prices.
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    \197\ This proviso is similar to the anti-manipulation provision 
of the CEA, which prohibits the communication of ``false or 
misleading or knowingly inaccurate reports concerning . . . market 
information or conditions that affect or tend to affect the price of 
any commodity in interstate commerce . . . .'' 7 U.S.C. 13(a)(2) 
(emphasis added). The Commission does not intend, however, to adopt 
the elements of proof that are required for a finding of liability 
under the CEA under the revised proposed Rule.
    \198\ Markets continually absorb new information and adjust 
price signals to that new information. Intentionally injecting false 
information into that process leads to distorted signals.
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    This approach comports with the weight of commenter responses to 
the initially proposed omissions provision. In this regard, many 
commenters recommended that the Commission ``require that market 
manipulation actually impact the market.''\199\ These commenters argued 
that if the rule did not focus on conduct harmful to the market--as 
manifested by a price or other market effect--it would potentially 
chill legitimate business conduct.\200\ In particular, they claimed 
that the rule would reach conduct arising from routine commercial 
transactions such as bilateral contract negotiations unlikely to harm 
the market.\201\ One commenter suggested that an effect on market 
prices would be relevant in determining whether a rule violation 
occurred.\202\
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    \199\ Sutherland at 6; see also API at 34 (recommending that the 
Commission require ``proof that a party's deceptive or fraudulent 
conduct caused market conditions to deviate materially from the 
conditions that would have existed but for that conduct''); Plains 
at 3.
    \200\ Many commenters disagreed with the Commission's proposal 
in the initial NPRM not to require a showing of price effects to 
establish a rule violation. See, e.g., Van Susteren at 2 (``The lack 
of a requirement of a showing of price effects to establish 
culpability leaves the rule overbroad and risks inconsistent or 
unwarranted enforcement efforts by the Commission.''); ISDA at 3-4 
(asking that the Commission require proof of price effects); Pirrong 
Tr. at 205 (``I think it would be beneficial to market participants 
to have [a price effects] standard in [a rule].''); see also Plains 
at 3 (urging the Commission to make clear that only conduct that has 
a ``manipulative effect on the relevant market'' will be 
actionable). Other commenters were concerned that if the Rule failed 
to focus on conduct harmful to the market, it would have a chilling 
effect on businesses. See, e.g., API at 33 (``Applying Section 811 
to conduct that does not cause a material deviation in market prices 
. . . would likely harm consumer welfare . . . by chilling 
competitive market behavior . . . .''); ISDA at 3-4 (arguing for a 
price effects requirement by explaining that ``a Rule that is 
overbroad, imprecise, or both likely will chill legitimate 
commercial behavior'').
    \201\ See, e.g., API at 33 (``Unless the FTC requires an 
appropriate connection between challenged conduct and a material 
deviation in market prices, it runs the risk of having to police 
every routine commercial dispute as a potential violation of Section 
811.''); ISDA at 13 (``[A]s a sound policy matter, conduct that 
actually harms markets is the only conduct with which the Commission 
should be concerned and to which it should devote its limited public 
resources.''); see also API (Long), Tr. at 220 (suggesting the 
Commission consider a safe harbor for statements or omissions not 
made in connection with corporate announcements, or reports to 
government agencies or private reporting services); cf. NPRA at 22 
(stating that the Commission's Rule ``should concentrate on whether 
the defendant intended to `defraud' the market, not just one other 
individual'').
    \202\ For example, CFDR explained that, in instances where the 
Commission is investigating multiple players, a movement in market 
prices as a result of conduct by one of the alleged wrongdoers can 
be probative in determining whether that player possessed the 
requisite intent or ``whether other market participants were in fact 
deceived by the alleged misconduct.'' CFDR at 7. Accordingly, CFDR 
asked that the Commission determine the ``relevance and importance'' 
of a price effect requirement on a case-by-case basis. Id.
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    In the initial NPRM, the Commission rejected requiring a 
demonstration of market or price effects in order to prove a rule 
violation, and some commenters supported that approach.\203\ CA AG, for 
example, agreed with the Commission's conclusion that there is no 
economic justification for fraudulent or deceptive conduct, and that 
harm to wholesale petroleum markets can properly be inferred from such 
conduct without more.\204\ Furthermore, MS AG and CA AG agreed that a 
price effects requirement would make it difficult to prove a rule 
violation even where effects had occurred, potentially encumbering law 
enforcement efforts.\205\ These commenters therefore supported the 
Commission's initial decision not to include a price effects 
requirement.
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    \203\ IPMA at 4; ATAA at 12; MS AG at 3; CA AG at 3; see also 
USDOJ, ANPR, at 1 (``Certainly, there should be no requirement that 
one succeed in moving prices . . . the only requirement should be an 
attempt to do so . . . whether successful or not.'').
    \204\ CA AG at 3; see 73 FR at 48329-30.
    \205\ CA AG at 3; MS AG at 3 (arguing that price effects could 
be ``extremely difficult to prove'' therefore chilling enforcement 
of ``obvious violations''). Specifically, CA AG noted that prior 
California gas pricing investigations demonstrated that it is nearly 
impossible to link a particular act to a corresponding direct effect 
on price because too many variables affect price. CA AG at 3.
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    The Commission continues to believe that a showing of price effects 
should not be required to establish a rule violation\206\ because there 
is no economic justification for fraudulent or deceptive conduct in any 
market.\207\ Requiring a showing of price effects--and imposing the 
concomitant additional evidentiary burden upon the Commission--would 
introduce an unnecessary risk that conduct detrimental to the integrity 
of the market would escape successful challenge.\208\
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    \206\ This approach is also consistent with that taken by the 
FERC in their market manipulation rulemaking proceedings. See 71 FR 
at 4244. Manipulative conduct can harm the marketplace even without 
a prolonged price effect by impeding the efficiency of the market 
equilibration process and potentially introducing distrust as to the 
integrity of the process. See 73 FR at 48329 (noting that 
``[f]raudulent behavior interferes with market signals, reduces 
transparency in the market, and casts into doubt the very 
information that allows markets to function properly'').
    \207\ The Commission believes that reading a price effect 
requirement into EISA is not only unsupported by the text of the 
Act, but also inconsistent with its aim to curb fraudulent or 
deceptive conduct in wholesale petroleum markets. See 42 U.S.C 
17301; see also 73 FR at 48329 n.138 (noting that ``[t]he enabling 
statute is clear: `It is unlawful . . . to use or employ . . . any 
manipulative or deceptive device or contrivance''').
    \208\ Overcoming the practical problems associated with 
identifying and proving a specific price effect from fraudulent or 
deceptive conduct in wholesale petroleum markets may not be possible 
in many, if not most, cases. See 73 FR at 48329-30 (``The 
Commission's experience in investigating petroleum pricing anomalies 
demonstrates the difficulty of identifying price changes that result 
directly from any specific act or conduct.'').
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    Requiring a showing that a particular omission ``distorts or tends 
to distort market conditions'' to establish a violation of Section 
317.3(b) should not be read as requiring that the FTC show that the 
market has actually been distorted.\209\ This language is rather

[[Page 18323]]

intended only to help strike an appropriate balance between achieving 
enforcement goals and avoiding unintended chilling effects on normal 
business activity. The provision therefore focuses only on those 
statements made misleading by reason of the omission of a material fact 
that threaten the integrity of wholesale petroleum markets--and thus 
carry the greatest risk of injury to those markets-- without unduly 
encumbering enforcement.\210\ The tendency to distort market conditions 
for wholesale petroleum products may be properly inferred from the 
conduct itself, without separate and additional proof of a tendency to 
distort market conditions. For example, proof that an actor 
intentionally reported price information to a private data reporting 
company that is in the business of providing price reports to the 
marketplace--and that the actor intentionally omitted material facts 
which the reporting company required to be reported--would satisfy the 
market conditions proviso.\211\ The Commission believes that the 
limiting proviso will also help avoid unwarranted regulatory burdens on 
industry by clarifying the scope of Section 317.3(b).\212\
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    \209\ In response to CFDR's argument that the presence or 
absence of market effects can inform the question of whether a 
violation occurred, the Commission notes that nothing in the RNPRM 
or the revised proposed Rule prevents it from considering market 
effects if the evidence on this issue is clear enough to be useful. 
See CFDR at 7.
    \210\ Conduct that distorts or tends to distort market 
conditions would be any conduct that arises from the intentional 
distortion of the market information upon which the price discovery 
process in wholesale petroleum markets depend.
    \211\ In this regard, the revised proposed Rule would be 
consistent with CEA precedent that, in determining whether a false 
report would affect or tend to affect the price of a commodity, 
courts and the CFTC have generally assumed that a false report of 
price or volume information to a source widely used by market 
participants would affect or tend to affect market conditions. See 
CFTC v. Bradley, 408 F. Supp. 2d 1214 (N.D. Okla. 2005) (denying 
defendant's motion to dismiss when complaint alleged defendants 
reported fictitious trades to private reporting services); In the 
Matter of Dynegy Mktg. & Trade, Comm. Fut. L. Rep. (CCH) ] 29,262 
(C.F.T.C. Dec. 18, 2002) (finding liability for false reporting of 
trading price and volume information to private reporting services); 
In the Matter of CMS Mktg. Serv. & Trading Co., Comm. Fut. L. Rep. 
(CCH) ] 29,634 (C.F.T.C. Nov. 25, 2003) (finding liability for false 
information submitted to private reporting services). Further, the 
Commission believes that proof that an actor falsely reported the 
operational status of a refinery, terminal, or pipeline, and did so 
through the intentional omission of material information, such 
conduct would also allow an inference that the conduct tended to 
distort market conditions.
    \212\ As an example of this approach, if an actor intentionally 
omits information material to the marketplace, establishing a Rule 
violation would require showing only that the stated information 
(i.e., the misleading statement) pertains to any process by which 
prices are discovered and adjusted. Markets continually absorb new 
information and adjust price signals to reflect that new 
information. A variety of information can affect the process 
including, e.g., information about operational activity of 
refineries, transportation disruptions, product inventory levels, 
and product prices.
---------------------------------------------------------------------------

    This proviso also should not be read as requiring the Commission to 
demonstrate a direct relationship between the conduct and an effect on 
price, as suggested by many commenters,\213\ or a quantifiable effect 
on prices or market conditions. Moreover, it is not the Commission's 
intent that the proviso require a demonstration of the presence of 
market power or a reduction in competition--within a relevant antitrust 
product and geographic market--as these concepts are defined by 
antitrust legal precedent.
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    \213\ See, e.g., Van Susteren at 2; ISDA at 13; Sutherland at 6; 
API at 32.
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    The Commission specifically seeks additional comment and 
information on this issue, including responses to specific questions 
set forth in Section IV.I. of this Notice. If, after reviewing 
additional comments on the RNPRM, the Commission should find that its 
tentative decision to include a market conditions proviso--or its 
tentative decision not to include a required showing of price effects--
impedes optimal enforcement efforts, the Commission will revisit the 
issue.
(3) Materiality
    Revised proposed Rule Section 317.3(b) prohibits the omission of a 
``material fact.'' The standard for materiality is addressed above in 
Section IV.D.2.b.2., and that standard also applies to subpart (b). 
Thus, for purposes of the omissions provision, a fact is material if 
there is a substantial likelihood that a reasonable market participant 
would consider it important in making a decision to transact, because 
the material fact significantly alters the total mix of information 
available.\214\
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    \214\ This standard conforms to the approach the Commission 
followed in the NPRM with respect to materiality; that is, 
``[c]onsistent with securities law, a fact is material if there is a 
substantial likelihood that a reasonable market participant would 
consider it in making its decision to transact because the material 
fact significantly alters the total mix of information available.'' 
73 FR at 48326.
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E. Section 317.4: Preemption

    Section 815(c) of EISA states that ``[n]othing in this subtitle 
preempts any State law.''\215\ Consequently, Section 317.4 of the 
revised proposed Rule contains a standard preemption provision used in 
other FTC rules, making clear that the Commission does not intend to 
preempt the laws of any state or local government, except to the extent 
of any conflict.\216\ This is consistent with the position stated in 
the NPRM, where the Commission explained that there is no conflict, and 
therefore no preemption, if ``state or local law affords equal or 
greater protection from the manipulative conduct prohibited by the 
proposed Rule.''\217\
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    \215\ 42 U.S.C. 17305.
    \216\ See, e.g., Disclosure Requirements and Prohibitions 
Concerning Franchising, 16 CFR 436.10(b).
    \217\ 73 FR at 48330.
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    Few commenters addressed preemption of state law. One commenter, MS 
AG, agreed that EISA does not preempt state law and urged the 
Commission not to do so.\218\ Two commenters agreed that the language 
of the proposed Rule does not appear to preempt state law.\219\ 
Accordingly, the revised proposed Rule includes the preemption 
provision proposed in the NPRM.\220\
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    \218\ MS AG at 3 (``[MS AG] agrees that the EISA does not 
preempt state law and the proposed Rule should not.'').
    \219\ Sutherland at 7 (``The proposed Rule includes language 
indicating the Commission's view that the new regulatory regime does 
not preempt state law.''); SIGMA at 3 (``The Commission has chosen 
not to include any language in the NPRM that would preempt 
applicable state law in the area of market manipulation.''); see 
also SIGMA at 3 (``SIGMA recommends that the Commission adopt 
hortatory language in its preamble to the NPRM that urges state 
attorneys general and other law enforcement officials to use its 
final rule as a guide to `market manipulation' cases.''); SIGMA 
(Columbus), Tr. at 186 (asserting that state attorneys general may 
chose to enforce Section 811 of EISA).
    \220\ See 73 FR 48330, 48334.
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F. Section 317.5: Severability

    Section 317.5 of the revised proposed Rule contains a standard 
severability provision. This provision makes clear that if any part of 
the Rule is held invalid by a court, the rest of the Rule will remain 
in effect.\221\ The Commission received no comments on this issue. 
Accordingly, the Commission retains without change the severability 
provision proposed in the NPRM.\222\
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    \221\ Examples of FTC rules containing similar severability 
provisions: Telemarketing Sales Rule, 16 CFR 310.9; Used Motor 
Vehicle Trade Regulation Rule, 16 CFR 455.7.
    \222\ 73 FR at 48330, 48334.
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G. Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (``RFA'')\223\ requires a 
description and analysis of proposed and final rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA requires an agency to provide an Initial Regulatory Flexibility 
Analysis (``IRFA'')\224\ with the proposed Rule and a Final Regulatory 
Flexibility Analysis (``FRFA'')\225\ with the final Rule, if any. The 
Commission is not required to make such analyses if a rule

[[Page 18324]]

would not have such an economic effect.\226\
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    \223\ 5 U.S.C. 601-612.
    \224\ 5 U.S.C. 603.
    \225\ 5 U.S.C. 604.
    \226\ 5 U.S.C. 605.
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    Although the scope of the Rule may reach a substantial number of 
small entities as defined in the RFA, the Commission believes that the 
revised proposed Rule would not have a significant economic impact on 
those businesses.\227\ In the initial NPRM, the Commission specifically 
requested comments on the economic impact of the initial proposed Rule 
and received none.\228\ Given that the revised proposed Rule does not 
impose any reporting or disclosure requirements, document or data 
retention requirements, or any other specific conduct requirements, it 
is unlikely that the revised proposed Rule will impose costs to comply 
beyond the standard costs associated with ensuring that acts, 
practices, and courses of conduct are not fraudulent or deceptive. 
Therefore, the Commission believes that the revised proposed Rule, if 
finalized, would not have a significant economic impact on a 
substantial number of small entities. Notwithstanding this belief, the 
Commission provides a full IRFA analysis to aid in its solicitation for 
additional comments on this topic.
---------------------------------------------------------------------------

    \227\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small-business concern'' as a business that is ``independently 
owned and operated and which is not dominant in its field of 
operation.'' 15 U.S.C. 632(a)(1). As noted above, Section 317.2(d) 
of the revised proposed Rule defines a ``person'' as ``any 
individual, group, unincorporated association, limited or general 
partnership, corporation, or other business entity.''
    \228\ See 73 FR at 48332.
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1. Description of the reasons that action by the agency is being 
considered
    Section 811 grants the Commission the authority to publish a rule 
that is ``necessary or appropriate in the public interest or for the 
protection of United States citizens.''\229\ As discussed above, the 
Commission believes that promulgating the revised proposed Rule is 
appropriate to prevent fraudulent or deceptive conduct in connection 
with wholesale petroleum markets for commodities listed in Section 811, 
and the Commission has tailored the revised proposed Rule specifically 
to reach such conduct.
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    \229\ 42 U.S.C. 17301.
---------------------------------------------------------------------------

2. Succinct statement of the objectives of, and the legal basis for, 
the revised proposed Rule
    The legal basis of the revised proposed Rule is Section 811 of 
EISA, which prohibits fraudulent or deceptive conduct in the wholesale 
purchase or sale of petroleum products in contravention of rules, if 
any, that the Commission may publish. The revised proposed Rule is 
intended to define the conduct that the law proscribes.
3. Description of and, where feasible, an estimate of the number of 
small entities to which the revised proposed Rule will apply
    The revised proposed Rule applies to persons, including business 
entities, engaging in the wholesale purchase or sale of crude oil, 
gasoline, and petroleum distillates. These potentially include 
petroleum refiners, blenders, wholesalers, and dealers (including 
terminal operators that sell covered commodities). Although many of 
these entities are large international and domestic corporations, the 
Commission believes that a number of these covered entities may fall 
into the category of small entities.\230\ According to the Small 
Business Administration (``SBA'') size standards, and utilizing SBA 
source data, the Commission estimates that between approximately 1,700 
and 5,200 covered entities would be classified as ``small 
entities.''\231\
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    \230\ Directly covered entities under this revised proposed Rule 
are classified as small businesses under the Small Business Size 
Standards component of the North American Industry Classification 
System (``NAICS'') as follows: petroleum refineries (NAICS code 
324110) with no more than 1,500 employees nor greater than 125,000 
barrels per calendar day Operable Atmospheric Crude Oil Distillation 
capacity; petroleum bulk stations and terminals (NAICS code 424710) 
with no more than 100 employees; and petroleum and petroleum 
products merchant wholesalers (except bulk stations and terminals) 
(NAICS code 424720) with no more than 100 employees. See SBA, Table 
of Small Business Size Standards Matched to North American Industry 
Classification System Codes (Aug. 22, 2008), available at (http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf).
    \231\ The SBA publication providing data on the number of firms 
and number of employees by firm does not provide sufficient 
precision to gauge the number of small businesses that may be 
impacted by the revised proposed Rule accurately. The data is 
provided in increments of 0-4 employees, fewer than 20 employees and 
fewer than 500 employees. Small Business Administration, Employer 
Firms, & Employment by Employment Size of Firm by NAICS Codes, 2006, 
available at (http://www.sba.gov/advo/research/us06_n6.pdf). Thus 
for the 228 petroleum refiners listed, 185 show that they have less 
than 500 employees. Although the Commission is unaware of more than 
five refiners with less than 125,000 barrels of crude distillation 
capacity, the data may be kept by refinery, rather than refiner. 
Similar problems exist for the bulk terminal and bulk wholesale 
categories listed above, in which the relevant small business cut 
off is greater than 100 employees. Although the Commission sought 
additional comment on the number of small entities covered by the 
initial proposed Rule, it received none. Accordingly, the small 
business data set forth in this IRFA are the best estimates 
available to the Commission at this time. Nonetheless, the 
Commission continues to seek comment or information providing better 
data.
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4. Description of projected reporting, recordkeeping, and other 
compliance requirements, including an estimate of the classes of small 
entities that will be subject to the requirement and the type of 
professional skills necessary for preparation of the report or record
    The Commission does not propose, and the revised proposed Rule does 
not contain, any requirement that covered entities create, retain, 
submit, or disclose any information. Accordingly, the revised proposed 
Rule would impose no recordkeeping or related data retention and 
maintenance or disclosure requirements on any covered entity, including 
small entities. Given that the revised proposed Rule does not impose 
any reporting requirements,\232\ it is unlikely that the revised 
proposed Rule would impose costs to comply beyond standard costs (or 
skills) associated with ensuring that conduct is not fraudulent or 
deceptive.
---------------------------------------------------------------------------

    \232\ See 73 FR at 48332.
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5. Identification of other duplicative, overlapping, or conflicting 
federal rules
    As discussed previously, other federal agencies have regulatory 
authority to prohibit in whole or in part fraudulent or deceptive 
conduct involving petroleum products. The SEC has authority to stop 
fraudulent and deceptive conduct involving the securities and 
securities offerings of companies involved in the petroleum industry. 
Additionally, the CFTC has authority to bring an action against any 
person who is manipulating or attempting to manipulate energy 
commodities.
    As explained in Section IV.B. above, the Commission does not intend 
for the revised proposed Rule to impose contradictory requirements on 
regulated entities in the futures markets or otherwise. To the extent, 
if any, that the revised proposed Rule's requirements could duplicate 
requirements already established by other agencies for such markets, 
the revised proposed Rule should not impose any additional compliance 
costs. The Commission is requesting comment on the extent to which 
other federal standards concerning fraud and deception may duplicate, 
satisfy, or inform the revised proposed Rule's requirements. In 
addition, the Commission seeks comment and information about any 
statutes or rules that may conflict with the revised proposed Rule's 
requirements, as well as any state, local, or industry rules or 
policies that require covered entities to implement practices

[[Page 18325]]

that comport with the requirements of the Rule.
6. Description of any significant alternatives to the revised proposed 
Rule that would accomplish the stated objectives of applicable statutes 
and that minimize any significant economic impact of the revised 
proposed Rule on small entities, including alternatives considered, 
such as: (1) establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities; (2) clarification, consolidation, or 
simplification of compliance and reporting requirements under the rule 
for such small entities; and (3) any exemption from coverage of the 
rule, or any part thereof, for such small entities
    The revised proposed Rule is narrowly tailored to reduce compliance 
burdens on covered entities, regardless of size. In formulating the 
revised proposed Rule, including the present revisions, the Commission 
has taken several significant steps to minimize potential burdens. Most 
significantly, the revised proposed Rule focuses on preventing fraud 
and deception in wholesale petroleum markets. At this time, the 
Commission has declined to include specific conduct or duty 
requirements, such as a duty to supply product or a duty to provide 
access to pipelines and terminals. In addition, the revised proposed 
Rule makes clear that covered entities need not disclose price, volume, 
and other data to the market. Finally, the revised proposed Rule 
contains no recordkeeping requirement.
    While the Commission believes that the revised proposed Rule 
imposes no unique compliance costs, it nonetheless requests comment on 
this issue, including in particular on whether the revised proposed 
Rule's prohibitions would have a significant impact upon a substantial 
number of small entities, and what modifications, if any, to the 
revised proposed Rule the Commission should consider to minimize 
further the burden on small entities.

H. Paperwork Reduction Act

    The Commission does not contemplate requiring any entity covered by 
the revised proposed Rule to create, retain, submit, or disclose any 
data. Accordingly, the revised proposed Rule does not include any new 
information collection requirements under the provisions of the 
Paperwork Reduction Act of 1995 (``PRA'').\233\ However, the 
Commission's experience with any final rule that may be adopted under 
Section 811 or pursuant to its investigative and enforcement role under 
Section 812 may suggest a particular need to require firms to create or 
maintain particular information. If such a need arises, the Commission 
may, in the future, adopt such rules as necessary or appropriate in the 
public interest or for the protection of United States citizens, and 
will accordingly notify and submit appropriate information to OMB, 
where required under PRA.\234\
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    \233\ 44 U.S.C. 3501-3521. Under the PRA, federal agencies must 
obtain approval from the Office of Management and Budget (``OMB'') 
for each collection of information they conduct or sponsor. 
``Collection of information'' means agency requests or requirements 
that members of the public submit reports, keep records, or provide 
information to a third party. 44 U.S.C. 3502(3).
    \234\ In the ANPR, the Commission solicited comment on whether 
covered entities should report market data, such as cost and volume 
data for wholesale transactions. 73 FR at 25622. In response, one 
commenter noted that Section 812 already addresses the making of 
false reports and should not be construed as giving the Commission 
authority to impose new reporting requirements. ISDA, ANPR, at 16 
(``Neither Section 811 nor Section 812 of the EISA authorizes the 
Commission to impose new reporting requirements.''); see also CFDR, 
ANPR, at 16 (``The Commission should not promulgate a rule that 
purports to impose disclosure obligations on market participants 
where no disclosure obligations otherwise exist under current 
law.''). But see, e.g., PMAA, ANPR, at 8-9 (stating that the 
Commission has authority under Section 811 to impose new reporting 
requirements); NPGA, ANPR, at 3 (``The authority to mandate the 
maintenance and submission of [information regarding wholesale 
petroleum transactions] is inherent in the EISA prohibitions against 
manipulative activities in Section 811 and the reporting of false 
information to Federal authorities in Section 812.'').
---------------------------------------------------------------------------

I. Request for Comments

    The Commission seeks comment on various aspects of the revised 
proposed Rule. The Commission is particularly interested in receiving 
comments on the questions that follow. In responding to these 
questions, include detailed, factual supporting information whenever 
possible.
    1. General Questions for Comment
    a. Does the revised proposed Rule strike an appropriate balance 
between protecting consumers from petroleum market manipulation and 
limiting attendant costs to industry such as the chilling of legitimate 
business conduct and compliance burdens? In considering whether an 
appropriate balance is stuck discuss:
    (1) the merits or flaws with having a different standard of 
scienter for Section 317.3(a) from Section 317.3(b);
    (2) the merits or flaws of eliminating Section 317.3(b) and 
consolidating the Rule into a single anti-fraud prohibition as set out 
by Section 317.3(a);
    (3) the merits or flaws of eliminating Section 317.3(b) and 
consolidating the Rule to a single anti-fraud prohibition as set out by 
Section 317.3(a), but with a scienter requirement of ``intentionally 
engage'' rather than ``knowingly engage;''
    (4) the merits or flaws of eliminating Section 317.3(b) and 
consolidating the Rule to a single anti-fraud prohibition as set out by 
Section 317.3(a), but adding a proviso that the challenged act, 
practice, or course of business distort or tend to distort market 
conditions; discuss the consequences of adding this proviso under both 
scienter alternatives of ``intentionally'' and ``knowingly.''
    b. Do the conduct provisions in revised proposed Rule Section 317.3 
provide sufficient clarity and precision in articulating prohibited 
conduct? Why or why not? If not, how could the Rule be modified to 
achieve those goals? Would a rule limited to Section 317.3(a) improve 
clarity and precision without impairing the basis for issuing a rule or 
the goal of preventing market manipulation to the benefit of consumers? 
Explain.
    c. Does revised proposed Rule Section 317.3 prohibit the injection 
of false information into market transactions? If not, how could the 
provision be revised to achieve that goal? Explain.
    d. Does a prohibition on the injection of false information into 
market transactions protect the integrity of such markets? Why or why 
not?
    e. Should a market manipulation rule reach fraudulent or deceptive 
conduct that does not distort or tend to distort market conditions? Why 
or why not? (Note: As explained in the discussion above respecting 
Section 317.3(b), the Commission does not intend that a requirement 
that the challenged conduct distort or tend to distort market 
conditions mean that a specific price or other market effect be an 
element to be demonstrated to prove a rule violation.)
    f. Discuss the benefits and costs of alternatives to promulgating 
the revised proposed Rule, including the following: (i) declining to 
issue a final rule; (ii) promulgating a final rule that mirrors the 
initially proposed Rule; or (iii) promulgating a final rule that solely 
prohibits false statements.
    2. Questions on Specific Provisions
    a. As drafted, does Section 317.3(a) provide sufficient clarity and 
precision as to the contours of prohibited conduct? Explain.
    b. Is it appropriate that the rule prohibit acts, practices, and 
courses of business that operate or would operate as a fraud or deceit 
on any person? Discuss the merit or lack of merit of prohibiting 
fraudulent or deceptive conduct. In so discussing, explain:
    (1) whether Section 811 of EISA authorizes the Commission to 
publish a

[[Page 18326]]

rule that prohibits all acts, practices, or courses of conduct that 
operate or would operate as a fraud or deceit on any person, including, 
e.g., common law fraud in which injury may not extend beyond the 
individual parties or otherwise impair the integrity of wholesale 
petroleum markets at large;
    (2) whether, as a policy matter, Section 317.3(a) should prohibit 
all acts, practices, or courses of conduct that operate or would 
operate as a fraud or deceit on any person, including, e.g., common law 
fraud in which injury may not extend beyond the individual parties or 
otherwise impair the integrity of wholesale petroleum markets at large; 
if not, discuss how the reach of the provision should be bounded, 
including, e.g., the merits of a proviso that the challenged conduct 
distort or tend to distort market conditions.
    c. Discuss the merits or flaws of the Section 317.3(a) scienter 
standard that the challenged person ``knowingly'' act. In the context 
of wholesale petroleum markets and in comparison to the tentative 
``knowingly engage'' standard, how would an alternative ``intentionally 
engage'' standard affect the ability of the Commission to protect 
consumers from deleterious market manipulation? What differences, if 
any, are there between the two alternative standards respecting the 
ability of firms to comply with Section 317.3(a), including the costs 
of compliance?
    d. As explained in the discussion of revised proposed Rule Section 
317.3(b), the Commission proposes that the Rule prohibit omissions of 
material fact--specifically, omissions of material facts that are 
necessary to ensure that a previously made statement is not misleading, 
provided that the informative content of the misleading statement 
distorts or tends to distort market conditions for any such product. 
What are the costs and benefits of this provision?
    e. Describe acts, practices, or courses of conduct, if any, that 
would threaten the integrity of wholesale petroleum markets that could 
not be reached by Section 317.3(a) but could be reached by Section 
317.3(b). If such conduct exists, what is its incidence? In comparison 
to conduct injurious to the integrity of wholesale petroleum markets 
reached by Section 317.3(a), does the potential injury from conduct 
reached by Section 317.3(b) justify its likely enforcement and 
compliance costs? Explain.
    f. Does the inclusion of the explicit scienter requirement in 
revised proposed Rule Section 317.3(b) adequately reduce any danger of 
a chilling effect on the flow of information essential to the 
functioning of, and transparency in, wholesale petroleum markets? Why 
or why not?
    g. Does the inclusion of the explicit scienter requirement--
intentionally fail--in revised proposed Rule Section 317.3(b) 
sufficiently reduce the danger of a chilling effect on benign or 
desirable business activity within wholesale petroleum markets? Why or 
why not?
    h. What forms of information, if any, should market participants be 
required to disclose in order to promote the functioning and integrity 
of wholesale petroleum markets? Explain. Under what circumstances, if 
any, would the failure to provide such information render otherwise 
truthful statements misleading?
    i. To what extent would any danger of a chilling effect on benign 
or desirable business activity depend upon the existence (or lack 
thereof) of mandatory disclosure obligations in the petroleum industry? 
Explain.
    j. If the merits of Section 317.3(b) as currently proposed outweigh 
any flaws or dangers, should it be expanded to require that a person 
update or correct information if circumstances change? How, if at all, 
would such an expansion alter the cost/benefit calculus? Explain.
    k. What, if any, danger arises if the scienter standard in revised 
proposed Rule Section 317.3(b) were changed to ``knowingly fail''? 
Explain.
    l. Is it clear that the ``intentionally'' scienter standard in 
revised proposed Rule Section 317.3(b) means that the Commission need 
only show that a violator intends to engage in fraudulent or deceptive 
conduct--without regard to the violator's intent to affect market 
conditions or knowledge of the probable consequences of such conduct? 
Why or why not? If not, how could the scienter language be revised to 
limit the evidentiary burden to requiring only a showing that the 
fraudulent or deceptive conduct was intentional?
    m. What types of evidence might be sufficient to demonstrate the 
proposed scienter standard in revised proposed Rule Section 317.3(b)? 
Explain. What types of evidence might be sufficient to demonstrate the 
proposed scienter standard in revised proposed Rule Section 317.3(a)? 
Discuss with particular emphasis on how, if at all, the evidentiary 
requirements to prove scienter differ between Section 317.3(b) and 
Section 317.3(a).
    n. Is it clear that the ``intentionally fail'' scienter standard in 
revised proposed Rule Section 317.3(b) is neither a recklessness 
standard nor a specific intent standard? If not, how could the scienter 
language be revised to make that clear? Explain.
    o. As explained in the discussion of revised proposed Rule Section 
317.3(b), the prohibitions language of Section 811 of EISA is nearly 
identical to Section 10(b) of the SEA from which Rule 10b-5 derives. 
Notwithstanding this similarity, does the statutory language in Section 
811--``as necessary or appropriate''--provide a sufficient basis for 
tailoring the scienter requirement of a FTC market manipulation rule to 
address wholesale petroleum markets? Explain.
    p. Intent need not be demonstrated to prove that an act or practice 
is deceptive or unfair in violation of Section 5 of the FTC Act. Does 
the presence of explicit scienter requirements in revised proposed Rule 
Section 317.3 create risk of judicial confusion regarding the differing 
elements of proof for an FTC market manipulation rule and for Section 5 
of the FTC Act respecting unfair or deceptive practices? Explain.
    q. Does the Section 317.3(b) proviso that a misleading statement 
distort or tend to distort market conditions for any covered product 
sufficiently ensure that the Rule strikes an appropriate balance 
between protecting consumers from petroleum market manipulation and 
limiting the costs to industry attendant with achieving that 
protection? Would adding the proviso to Section 317.3(a) achieve a 
better balance between protecting consumers and attendant industry 
costs in the enforcement of that provision of the Rule? Explain.
    r. Does the Section 317.3(b) proviso that a misleading statement 
distort or tend to distort market conditions for any covered product 
unduly limit the Commission's ability to prohibit misleading statements 
that threaten the integrity of wholesale petroleum markets? Why or why 
not? If not, how could the provision be revised to achieve that goal? 
Explain. Were the proviso added to Section 317.3(a), would the 
Commission's ability to protect the integrity of wholesale petroleum 
markets be impaired? Explain.
    s. Is it clear that the Section 317.3(b) proviso that a misleading 
statement distort or tend to distort market conditions for any covered 
product is not intended to create a price or market effects element of 
proof? I.e., is it clear from the language of Section 317.3(b) that in 
order to establish a Rule violation, the Commission need not prove any 
specific price or market effect? If not, how can the Rule be revised to 
make that point clear? Discuss.
    t. What types of evidence might be sufficient to demonstrate that a 
misleading statement distorts or tends to

[[Page 18327]]

distort market conditions for any covered wholesale petroleum product? 
For example, should it be sufficient simply to show that the 
informative content of a misleading statement is of the type typically 
absorbed by the market and incorporated into market prices? Explain.
    u. Is it clear that a violation of revised proposed Rule Section 
317.3 does not require that the violator possess market power--and need 
not have reduced competition--in a relevant antitrust market, as these 
concepts are defined by antitrust legal precedent? Why or why not? If 
not, how could the language be revised to make clear that neither a 
showing of market power nor a reduction in competition is an element of 
proof?
    v. Consider the following alternative rule language:
    It shall be unlawful for any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, to engage in any act (including the 
making of any untrue statement), practice, or course of conduct with 
the intent* to defraud or deceive, provided that such act, practice, or 
course of conduct distorts or tends to distort market conditions for 
any such product.
    * The phrase ``with the intent'' shall mean that the alleged 
violator intended to mislead--regardless of whether he or she 
specifically intended to affect market prices (e.g., specific intent), 
or knew or must have known of the probable consequences of such 
conduct--and regardless of whether the conduct was likely to succeed in 
defrauding or deceiving the target.
    Would this alternative language better achieve (or would it not 
better achieve) the goals of Section 811 of EISA than the revised 
proposed Rule discussed in this Notice. Explain. Discuss the merits or 
flaws, if any, of this alternative language?
    w. Hypothetical questions:
    (1) Company ABC reports a trade to the XYZ Price Service, a service 
that collects transactional data and uses the data to set a benchmark 
price that the industry uses to negotiate spot purchases of refined 
product. XYZ procedures, which are well known throughout the industry, 
require reporting companies to identify transactions below a specified 
volume to limit the impact of transactions with inconsequential volumes 
on the benchmark price. The volume of ABC's trade is below the 
specified volume, but:
    (a) ABC inadvertently omits that information.
    (b) ABC establishes procedures to ensure that persons reporting 
transactions know to identify transactions below the specified amount 
but the individual reporting this transaction fails to follow those 
procedures.
    (c) ABC intentionally omits the information identifying the trade.
    (2) Trader A receives a request from RST Refinery for crude oil of 
a particular grade, specifying that it prefers not to buy crude from 
the country of Cepo for political reasons. Trader A is unable to find 
the kind of crude RST requires except in Cepo. Trader A:
    (a) Sells the crude from Cepo to RST without disclosing that it is 
from Cepo.
    (b) Sells the crude to RST and represents that it is from the 
country of West Friendly, knowing that it is from Cepo.
    (c) Does not know and does not ask where the crude is from and 
sells it to RST without representing its origin.
    Applying (1) the revised proposed rule language appearing in this 
Notice and (2) the alternative rule language appearing above in 
Question 2v. to the facts provided in these hypothetical examples, 
discuss differences, if any, in the outcome of an enforcement action. 
Which result would be more desirable and why? Also speak to the 
effectiveness and ability of each rule version to reach any harmful 
manipulative conduct contained in the fact pattern, the relative 
burdens on the Commission to enforce the rule successfully, and the 
relative risks of enforcement error.
    3. Regulatory Flexibility Act
    The Commission requests that commenters provide information about 
the potential scope and economic impact of the revised proposed Rule so 
that the Commission may better assess the economic impact of the 
language of any final rule if it determines to publish such rule. 
Specifically, the Commission requests comments on:
    a. the number and type of small entities affected by the revised 
proposed Rule;
    b. any or all of the provisions in the revised proposed Rule with 
regard to: (i) the impact of the provision(s) (including benefits and 
costs to implement and comply with the Rule or Rule provisions), if 
any; (ii) what alternatives, if any, the Commission should consider, as 
well as the costs and benefits of those alternatives, paying specific 
attention to the effect of the revised proposed Rule on small entities;
    c. ways in which the revised proposed Rule could be modified to 
reduce any costs or burdens on small entities, including whether and 
how technological developments could further reduce the costs of 
implementing and complying with the revised proposed Rule for small 
entities;
    d. any information quantifying the economic costs and benefits of 
the revised proposed Rule on the entities covered, including small 
entities; and
    e. the identity of any relevant federal, state, or local rules that 
may duplicate, overlap, or conflict with the revised proposed Rule.

List of Subjects in 16 CFR Part 317

    Trade practices.


0
Accordingly, for the reasons set forth in the preamble, the Commission 
proposes to amend Title 16, Chapter 1, Subchapter C of the Code of 
Federal Regulations to add a new part 317 as follows:

PART 317--PROHIBITION OF ENERGY MARKET MANIPULATION RULE

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

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


Sec.  317.1  Scope.

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


Sec.  317.2  Definitions.

    The following definitions shall apply throughout this rule:
    (a) Crude oil means any mixture of hydrocarbons that exists:
    (1) In liquid phase in natural underground reservoirs and that 
remains liquid at atmospheric pressure after passing through separating 
facilities, or
    (2) As shale oil or tar sands requiring further processing for sale 
as a refinery feedstock.
    (b) Gasoline means:
    (1) Finished gasoline, including, but not limited to, conventional, 
reformulated, and oxygenated blends, and
    (2) Conventional and reformulated gasoline blendstock for oxygenate 
blending.
    (c) Knowingly means with actual or constructive knowledge such that 
the

[[Page 18328]]

person knew or must have known that his or her conduct was fraudulent 
or deceptive.
    (d) Person means any individual, group, unincorporated association, 
limited or general partnership, corporation, or other business entity.
    (e) Petroleum distillates means:
    (1) Jet fuels, including, but not limited to, all commercial and 
military specification jet fuels, and
    (2) Diesel fuels and fuel oils, including, but not limited to, No. 
1, No. 2, and No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.
    (f) Wholesale means:
    (1) All purchases or sales of crude oil or jet fuel; and
    (2) All purchases or sales of gasoline or petroleum distillates 
(other than jet fuel) at the terminal rack or upstream of the terminal 
rack level.


Sec.  317.3  Prohibited practices.

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


Sec.  317.4  Preemption.

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


Sec.  317.5  Severability.

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

    By direction of the Commission.

Donald S. Clark,
Secretary.

    Note: The following attachment will not appear in the Code of 
Federal Regulations.
    Federal Register
    Attachment A
    NPRM Commenters

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

    Federal Register
    Attachment B
    Workshop Participants

    American Bar Association Section of Antitrust Law's Fuel & Energy 
Industry Committee (``ABA Energy''): Bruce McDonald, Jones Day LLP
    Association of Oil Pipe Lines (``AOPL''): Linda G. Stuntz, Stuntz, 
Davis & Staffier, PC
    American Petroleum Institute (``API''): Jonathan Gimblett, 
Covington & Burling LLP
    American Petroleum Institute (``API''): Robert A. Long, Jr., 
Covington & Burling LLP
    Argus Media Inc. (``Argus''): Dan Massey
    Consumer Federation of America (``CFA''): Mark Cooper
    New York City Bar Association, Committee on Futures & Derivatives 
Regulation (``CFDR''): Charles R. Mills, K&L Gates
    CME Group (``CME''): De'Ana Dow
    Flint Hills Resources, LP (``Flint Hills''): Alan Hallock
    International Swaps and Derivatives Association, Inc. (``ISDA''):
    Athena Y. Velie, McDermott, Will & Emery LLP
    Futures Industry Association, CME Group, Managed Funds Association, 
Intercontinental Exchange, Inc., National Futures Association 
(``MFA''):
    Mark D. Young, Kirkland & Ellis LLP
    Resolute Natural Resources Company (``Navajo Nation''): James 
Piccone
    Navajo Nation Oil and Gas Corporation (``Navajo Nation''): Perry 
Shirley
    National Petrochemical and Refiners Asssociation (``NPRA''):
    Susan S. DeSanti, Sonnenschein Nath & Rosenthal LLP
    National Petrochemical and Refiners Association (``NPRA''): Charles 
T. Drevna
    Craig Pirrong, The University of Houston: Bauer College of Business 
(``Pirrong'')
    Platts (``Platts''): John Kingston
    Petroleum Marketers Association of America (``PMAA''):
    Robert Bassman, Bassman, Mitchell & Alfano, Chtd.
    Society of Independent Gasoline Marketers of America (``SIGMA''): 
James D. Barnette,

[[Page 18329]]

    Steptoe & Johnson LLP
    Society of Independent Gasoline Marketers of America (``SIGMA''): 
R. Timothy Columbus, Steptoe & Johnson LLP
    David J. Van Susteren, Fulbright & Jaworski LLP (``Van Susteren'')

    Federal Register
    Attachment C
    ANPR Commenters

    American Bar Association/Section of Antitrust Law (``ABA'')
    Association of Oil Pipe Lines (``AOPL'')
    American Petroleum Institute and the National Petrochemical and 
Refiners Association (``API'')
    Patrick Barrett (``Barrett'')
    Lawrence Barton (``Barton'')
    Dave Beedle (``Beedle'')
    Stanley Bergkamp (``Bergkamp'')
    Louis Berman (``Berman'')
    Bezdek Associates, Engineers PLLC (``Bezdek'')
    Katherine Bibish (``Bibish'')
    John Booke (``Booke'')
    Bradley (``Bradley'')
    Jeremy Bradley (``J. Bradley'')
    Charles Bradt (``Bradt'')
    Wendell Branham (``Branham'')
    Lorraine Bremer (``Bremer'')
    Gloria Briscolino (``Briscolino'')
    Rick Brownstein (``Brownstein'')
    Byrum (``Byrum'')
    Canadian Association of Petroleum Producers (``CAPP'')
    Jeff Carlson (``Carlson'')
    Jacquelynne Catania (``Catania'')
    Marie Cathey (``Cathey'')
    New York City Bar, Association Committee on Futures & Derivatives 
Regulation (``CFDR'')
    U.S. Commodities Futures Trading Commission (``CFTC'')
    Manuel Chavez (``Chavez'')
    Michael Chudzik (``Chudzik'')
    D. Church (``Church'')
    Earl Clemons (``Clemons'')
    Dan Clifton (``Clifton'')
    Kim Cruz (``Cruz'')
    Jerry Davidson (``Davidson'')
    Don Deresz (``Deresz'')
    Charlene Dermond (``Dermond'')
    Kimberly DiPenta (``DiPenta'')
    Penny Donaly (``Donaly1'')
    Penny Donaly (``Donaly2'')
    Penny Donaly (``Donaly3'')
    Penny Donaly (``Donaly4'')
    Deep River Group, Inc. (``DRG'')
    Harold Ducote (``Ducote'')
    Mary Dunaway (``Dunaway'')
    Econ One Research, Inc. (``Econ One'')
    Terri Edelson (``Edelson'')
    Kevin Egan (``Egan'')
    DJ Ericson (``Ericson'')
    Mark Fish (``Fish'')
    Flint Hills Resources, LP (``Flint Hills'')
    Bob Frain (``Frain'')
    Joseph Fusco ( ``Fusco'' )
    Tricia Glidewell (``Glidewell'')
    Robert Gould (``Gould'')
    James Green (``Green'')
    Michael Greenberger (``Greenberger'')
    Christine Gregoire, Governor, State of Washington (``Gregoire'')
    Hagan (``Hagan'')
    Toni Hagan (``Toni'')
    Charles Hamel (``Hamel'')
    Chris Harris (``Harris'')
    Thomas Herndon (``Herndon'')
    Johnny Herring (``Herring'')
    Hess Corporation (``Hess'')
    David Hill (``Hill'')
    Hopper (``Hopper'')
    Sharon Hudecek (``Hudecek'')
    IntercontinentalExchange, Inc. (``ICE'')
    Institute for Energy Research (``IER'')
    Independent Lubricant Manufacturers Association (``ILMA'')
    Illinois Petroleum Marketers Association (``IPMA'')
    International Swaps and Derivatives Association, Inc. (``ISDA'')
    Micki Jay (``Jay'')
    Kenneth Jensen (``Jensen'')
    Paul Johnson (``Johnson'')
    Tacie Jones (``Jones'')
    Joy (``Joy'')
    John Kaercher (``Kaercher'')
    Kas Kas (``Kas'')
    Kipp (``Kipp'')
    Paola Kipp (``P. Kipp'')
    Jerry LeCompte (``LeCompte'')
    Kurt Lennert (``Lennert'')
    Loucks (``Loucks'')
    Robert Love (``Love'')
    R. Matthews (``Matthews'')
    Catherine May (``May'')
    Mike Mazur (``Mazur'')
    Sean McGill (``McGill'')
    Kathy Meadows (``Meadows'')
    Futures Industry Association, CME Group, Managed Funds Association,
    IntercontinentalExchange, National Futures Association (``MFA'')
    Bret Morris (``Morris'')
    Theresa Morris-Ramos (``Morris-Ramos'')
    Scott Morosini (``Morosini'')
    Timothy J. Muris and J. Howard Beales, III (``Muris'')
    Navajo Nation Resolute Natural Resources Company and Navajo Nation 
Oil and Gas Company (``Navajo Nation'')
    Laurie Nenortas (``Nenortas'')
    James Nichols (``Nichols'')
    Virgil Noffsinger (``Noffsinger'')
    Noga (``Noga'')
    Richard Nordland (``Nordland'')
    National Propane Gas Association (``NPGA'')
    Kerry O'Shea, (``O'Shea'')
    Jeffery Parker (``Parker'')
    Pamela Parzynski (``Parzynski'')
    Brook Paschkes (``Paschkes'')
    Brijesh Patel (``Patel'')
    Stefanie Patsiavos (``Patsiavos'')
    P D (``PD'')
    Guillermo Pereira (``Pereira'')
    James Persinger (``Persinger'')
    Mary Phillips (``Phillips'')
    Plains All American Pipeline, LLP (``Plains'')
    Platts (``Platts'')
    Betty Pike (``Pike'')
    Petroleum Marketers Association of America (``PMAA'')
    Joel Poston (``Poston'')
    Radzicki (``Radzicki'')
    Gary Reinecke (``Reinecke'')
    Steve Roberson (``Roberson'')
    Shawn Roberts (``Roberts'')
    Linda Rooney (``Rooney'')
    Mel Rubinstein (``Rubinstein'')
    secret (``secret'')
    Joel Sharkey (``Sharkey'')
    Society of Independent Gasoline Marketers of America (``SIGMA'')
    Daryl Simon (``Simon'')
    David Smith (``D. Smith'')
    Donald Smith (``Do. Smith'')
    Mary Smith (``M. Smith'')
    Donna Spader (``Spader'')
    Stabila (``Stabila'')
    Alan Stark (``A. Stark'')
    Gary Stark (``G. Stark'')
    Robert Stevenson (``Stevenson'')
    Ryan Stine (``Stine'')
    Maurice Strickland (``Strickland'')
    Sutherland, Asbill, and Brennan, LLP (``Sutherland'')
    L.D. Tanner (``Tanner'')
    Dennis Tapalaga (``Tapalaga'')
    Tennessee Oil Marketers Association (``TOMA'')
    Theisen (``Theisen'')
    Greg Turner (``Turner'')
    U.S. citizen (``U.S. citizen'')
    U.S. Department of Justice, Criminal Fraud Section (``USDOJ'')
    Jeff Van Hecke (``Van Hecke'')
    Louis Vera (``Vera'')
    Thomas Walker (``Walker'')
    Victoria Warner (``Warner'')
    Lisa Wathen (``Wathen'')
    Watson (``Watson'')
    Gary Watson (``G. Watson'')
    Joseph Weaver (``Weaver'')
    Webb (``Webb'')
    Vaughn Weming (``Weming'')
    Douglas Willis (``Willis'')
[FR Doc. E9-9224 Filed 4-21-09: 8:45 am]
BILLING CODE 6750-01-S