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UNITED STATES OF AMERICA·· , J ' • 

COMMODITY FUTURES TRADING COMMISION 

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Significant Price Discovery Contracts ) 

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17 CFR Parts 15-19, 

21,36 and 40 

COMMENTS OF THE AIR TRANSPORT ASSOCIATION 

OF AMERICA, INC. 

The Air Transport Association of America, Inc. ("ATA") respectfully 

~~: 

submits these comments in response to the Commodity Futures Trading 

Commission's ("CFTC" or "Commission") proposed rules 1 to implement the CFTC 

Reauthorization Act of 2008 ("Reauthorization Act" or "Act"). AT A supports the 

proposed rule, which brings much-needed regulatory oversight and reform to 

exempt commercial markets ("ECMs"). In addition, we urge the Commission to 

vigorously execute and enforce these regulations once finalized. 

I. ATA's INTEREST 

ATA is the nation's oldest and largest airline trade association and its 

members account for more than 90 percent of the passenger and cargo traffic 

carried by U.S. airlines.2 Since its founding in 1936, ATA has played a major 

role in the regulatory arena by encouraging governmental policy decisions that 

foster a financially stable U.S. airline industry capable of meeting the nation's 

travel and shipping needs while withstanding the inherently cyclical nature of 

this industry. 

1 73 Fed.Reg. 75888 (December 12, 2008). 2 AT A serves as the principal trade and service organization of the major air carriers - both 

passenger and cargo- in North America. ATA member airlines are: ABX Air; AirTran Airways; 

Alaska Airlines; American Airlines; ASTAR Air Cargo.; Atlas Air; Continental Airlines.; Delta Air 

Lines; Evergreen International Airlines, Federal Express Corporation.; Hawaiian Airlines; JetBiue 

Airways; Midwest Airlines; Southwest Airlines; United Airlines; UPS Airlines and US Airways; 

associate members are: Air Canada; Air Jamaica and Mexicana. 
The U.S. airline industry continues to face many challenges in returning to 

financial stability. Primary among those challenges is the high cost of jet fuel, 

whose price is closely tied to the price of crude oil. In 2008, crude oil and jet 

fuel prices reached all-time highs with significant negative ramifications for air 

service.3 It is now generally accepted that 2008's meteoric price rise to 

unprecedented levels was due largely to excessive speculation in energy futures. 

The oil price implosion in the Fall/Winter of 2008 is another indicator that prices 

had become, and perhaps still are, disconnected from supply and demand 

principles. 

Airlines consume the fuel they purchase and cannot easily pass on that 

cost in what is a highly competitive marketplace. Because the airline industry is 

a substantial consumer of jet fuel, and because individual airlines rely on 

strategic hedging to manage the financial risk associated with that consumption, 

ATA and its members have a significant interest in healthy and properly 

functioning energy commodity markets and the CFTC's oversight of those 

markets. In June, 2008, we urged Congress to enact common-sense measures 

to ensure transparency and reign in excessive speculation in the energy futures 

markets. The proposed rules are an important step on the road to accomplishing 

these objectives. 

II. SPECIFIC COMMENTS 

While ATA would have preferred Congress to enact a more direct and 

comprehensive regulatory structure for energy markets, including ECMs but also 

3 U.S. airlines spent nearly $58 billion on jet fuel in 2008, $16 billion more than in 2007, and jet 

fuel surpassed labor as the largest cost category for most airlines. 

2 
OTC and other transactions, 4 nevertheless the Reauthorization Act goes a long 

way towards closing the so-called "Enron loophole"5 by bringing a degree of 

regulatory oversight to ECMs. The absence of regulatory oversight over ECMs 

enabled excessive speculation in energy futures contracts that, ultimately, led to 

oil prices becoming disconnected from underlying supply and demand 

fundamentals and the price "bubble" during the spring and summer of 2008. As 

we know now, those oil prices could not be sustained and the bubble burst. 

Identifying Covered Contracts. As the NPRM notes, Congress has 

directed the CFTC to extend its regulatory oversight to ECMS with significant 

price discovery contracts ("SPDCs") and to treat the ECMS, in essence, as 

designated contract markets ("DCMs") with respect to SPDCs. To accomplish 

this, ECMS would be required to submit quarterly reports containing information 

about the terms and conditions, and related information, for all contracts traded. 

In addition, the NPRM sets forth conditions under which ECMs will be required to 

notify the Commission of possible SPDCs. ATA supports both of these 

measures as they are critical to ensuring much needed transparency into ECMs 

and allowing the CFTC to exercise its oversight authority. ATA also supports the 

requirement in proposed rule 36.3(b )(3), which calls for ECMs with SPDCs to 

comply with the daily reporting and publication requirements of regulation 16.01. 

4 Large speculative positions transacted OTC are not reportable since they are masked behind 

the commercial position of the market maker. For this reason, aggregate position limits are 

preferable as a means to curtail excessive speculation. 5 In the Commodity Futures Modernization Act of 2000 ("Mod Act"), Congress revised 

longstanding law and policy by allowing energy commodities to be traded, for the first time, on 

markets other than regulated exchanges- specifically, ECMs. This is the so-called Enron 

loophole. ATA supports complete repeal of the Enron loophole. 

3 
Section (b)(?)(B) of the Act sets forth the criteria the Commission is to 

consider in determining whether an agreement, contract or transaction 

constitutes an SPDC; that is, whether a contract performs a significant price 

discovery function. The NPRM adopts the statutory language, proposed section 

36.3(c), and in the preamble notes that Congress did not prioritize or weight 

these criteria, instead leaving it to the Commission to exercise its judgment and 

discretion in applying them to a particular contract or market. To give ECMs and 

the public guidance as to how the Commission wiWapply the criteria, Appendix A 

to the NPRM explains how the Commission expects to apply the criteria in 

making determinations. 

Procedures for Determining SPDCs. The determination of SPDCs is 

fundamental to the success of the regulatory structure and Congress' goal of 

closing the En ron loophole. Consequently, it is critically important that the 

Commission exercise its authority aggressively and broadly to achieve this goal. 

The benefits to the public from ECM oversight mandated by Congress flow from 

the identification of SPDCs. For these reasons, it is incumbent on the 

Commission to construe its authority broadly and to aggressively exercise its 

discretion to ensure transparency and oversight over SPDCs and ECMs. 

Furthermore, the Commission should act swiftly to identify and regulate specific 

contracts and ECMs. The case-by-case nature of the regulatory structure 

established by the Reauthorization Act should not be allowed to become an 

obstacle to achieving the Act's overriding purpose of restoring regulatory 

oversight to ECMs. The Commission should use its authority and discretion to 

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create a streamlined and speedy process, and rely on existing data and studies 

in addition to new information reported pursuant to these regulations, to identify 

SPDCs. In this case, delay will only harm markets, consumers and legitimate 

energy hedgers. Accordingly, ATA urges the Commission to revise proposed 

regulation 36.3( c)(3) to provide 14 calendar days notice, not 30, of its intention to 

designate a contract as an SPDC. The regulation also should state that the 

Commission will issue it final determination no later than 14 days after the 

comment period closes. 

Likewise, proposed regulation 36.3(c)(4) should be modified to reduce 

from 90 days to 60 days the time allowed ECMS to demonstrate initial 

compliance with the nine core principles. The success (or failure) of the 

oversight regulatory structure hinges in large part on ECM conformance to the 

Act's core principles, which the proposed regulations amplify. ECMs are 

sophisticated entities that will have had ample warning that a contract is likely to 

be determined to be an SPDC, based not only on the CFTC's published notice 

but also on their own knowledge of transactions occurring on their platforms. A 

90 day grace period is excessive under these circumstances. 

The trader grace period to reach a position limit6 likewise should be 

reduced to 60 days. A 90 day grace period does little to deter traders who are 

intent on engaging in speculative trading from "gaming the system" until "caught." 

On the other hand, large positions can often have a highly deleterious effect on 

the markets and these impacts need to be mitigated at the earliest feasible time. 

Accumulating excessive positions should carry a risk over and above normal 

6 Core principle IV directs ECMs to establish position and monitoring limits. 

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market risks for traders, and the swift imposition of position limits and the 

potential for forced liquidation of contracts provides that additional risk.7 By 

creating a deterrent to accumulating excessive positions, the Commission 

furthers the goals of the Reauthorization Act. 

Core Principles and Compliance. The Act sets forth the core principles 

that ECMs must satisfy if the Commission identifies one or more SPDCs. 

Appendix 8 to the proposed regulations provides guidance for traders on 

complying with the core principles. Although ATA generally supports Appendix 

8, we offer the following specific comments. 

• CFTC Enforcement Reviews. The NPRM states that the Commission will 

conduct "regular enforcement reviews" to evaluate compliance with the 

nine core principles. Consistent with our earlier comments, such reviews 

should be rigorous and frequent. Lax monitoring and enforcement will 

encourage non-compliance by ECMs and, ultimately, traders, thereby 

frustrating Congress' purpose in passing the Reauthorization Act. 

• Core Principle II. The NPRM states that monitoring by ECMs with SPDCs 

is intended to "prevent market manipulation" and deter "trading and 

participation abuses." 73 Fed.Reg. 75894. This statement falls short by 

failing to expressly include excessive speculation. When it promulgates 

the final rule, the Commission should make clear that it is intended to 

prevent excessive speculation. This is an important point that bears on 

the implementation of Core Principle IV and the effectiveness of the final 

7 A quicker reduction in positions will not typically work a significant hardship on traders but the 

added risk should affect their behavior. 

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rule. Failure to expressly include excessive speculation will impair the 

final rule's reach and deterrent effect. 

• Core Principle Ill. As noted, ATA has advocated transparency for these 

markets. ATA supports the authority granted to ECMs to obtain 

information necessary to perform their monitoring and oversight 

responsibilities under the core principles. Consistent with our earlier 

comments, the Commission should exercise its own authority liberally to 

encourage ECMs to collect such information and monitor traders and 

transactions. 

• Core Principle IV- Position and Monitoring/Accountability Limits. 8 ATA 

recommends more stringent standards for position and accountability 

limits in order to prevent or deter excessive speculative trading. While we 

agree that this principle should prevent market manipulation, it should also 

prevent excessive speculation, which drove the oil prices to unsustainable 

highs in 2008, followed by dramatic lows after the bubble burst. These 

regulations should seek to prevent such volatility that is disconnected from 

market fundamentals. We also recommend a shorter grace period for 

traders to comply with these limits. The risk of having to quickly liquidate 

contracts determined to exceed position or accountability limits will deter 

traders from attempting to game the system. 

We also note our disagreement with the Commission's assertion 

that position limits should not be required for uncleared contracts. We 

8 Position accountability, while a positive step forward, falls short of the benefits to markets and 

consumers of position limits. For most markets, firm position limits should be required. 

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recommend that firm limits be established for all contracts traded on the 

ECM, whether cleared or uncleared, and that position taken by traders in 

like contracts off the exchange should be reported. 

• Principles VI, VII and VIII. ATA supports the Commission's guidance 

regarding these principles. Avoiding conflicts of interest (Principle VIII) is 

particularly important, and ECMs must have the tools to detect compliance 

with this, and other, rules. 

• Principle IX. ATA agrees that ECMs must avoid anticompetitive conduct 

and supports the guidance on this point. 

Market, Transaction and Large Trader Reporting Rules. ATA supports the 

Commission's determination that its reporting rules can be applied to SPDCs 

traded on ECMs. 73 Fed.Reg. 75897-88. In particular, we agree with the reach 

of proposed section 16.01 to ECM clearing members clearing SPDCs, regardless 

of their registration status with the Commission or their status as domestic or 

foreign persons, for large SPDC position held in accounts carried by such 

brokers when customer positions exceed the contract reporting levels of 

regulation 15.03(b ). This is consistent with the Reauthorization Act's purpose of 

preventing excessive speculation and market manipulation. We also support 

proposed section 16.02 to access transaction information and trader 

identifications to enforce position limits and to monitor large positions. 

a 
Ill. Conclusion 

The NPRM brings sorely needed regulatory oversight and transparency to 

ECMs even though it is limited by the framework established by Congress in the 

Reauthorization Act. To overcome these inherent limitations, at least in part, we 

urge the Commission to modify the proposed regulations to expressly prevent 

and deter excessive speculation, articulate the policy that it will construe its 

authority broadly and liberally to prevent excessive speculation and volatility, and 

vigorously enforce these regulations. 

Respectfully submitted, 

AIR TRANSPORT ASSOCIATION OF AMERICA, INC. 

Vice President & General Counsel 

Air Transport Association of America, Inc. 

1301 Pennsylvania Avenue, NW 

Washington, DC 20004 

202-626-4000 

Dated: February 10, 2009 

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