/ ,. 

C.F.T~O· 

November 3, 2009 

Received CFTC 

~Section 

'lf3Joi OFfiCE OF THE SECRETARJAT 

Via Electronic Mail: Secretary@cftc.gov 8009 NUU B P f'1 ~·· 38 

Mr. David Stawick, Secretary 

U.S. Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Re: ICE Waha Financial Basis (WAH) Contract 

ICE TCO Financial Basis (TCO) Contract 

Mr. Stawick, 

ICE PG&E Citygate Financial Basis (PGE) Contract 

ICE Permian Financial Basis (PER) Contract 

ICE NGPL TxOk Financial Basis (NTO) Contract 

ICE Malin Financial Basis (MLN) Contract 

ICE HSC Financial Basis (HSC) Contract 

ICE Dominion- South Financial Basis (DOM) Contract 

ICE Chicago Financial Basis (DGD) Contract 

ICE AECO Financial Basis (AEC) Contract 

ICE Zone 6-NY Financial Basis (TZS) Contract 

ICE TETCO--M3 Financial Basis (TMT) Contract 

ICE San Juan Financial Basis (SNJ) Contract 

(Collectively, the "ICE Contracts.") 

The Financial Institutions Energy Group ("FIEG") is comprised of investment and commercial 

banks that provide a broad range of financial services to all segments ofthe U.S. and global 

economy. Its Members and their affiliates play a number of roles in the wholesale power and 

natural gas markets, including acting as marketers, lenders, underwriters of debt and equity 

securities, and proprietary investors. FIEG Members are active participants in all aspects of the 

natural gas markets. 

FIEG respectfully requests that the Commodity Futures Trading Commission (the 

"Commission") carefully consider whether the ICE Contracts meet the significant price 

discovery contract ("SPDC") determination, set forth in the Commission's SPDC Orders. While 

the Commission submits that the ICE Contracts may satisfy the material liquidity, price linkage, 

and material price reference factors needed for SPDC determination, we have concerns. 

While FIEG appreciates the opportunity to share its views on the Commission's determination 

with regard to the ICE Contracts, we would like to note at the outset that neither the Commission 

nor market participants have any experience with the actual implications of an SPDC designation 

on one contract, let alone many, with regard to the price of natural gas contracts or their related 

physical transactions, which set the price of such contracts. In addition, the electronic markets 
have not fully implemented the infrastructure required to regulate contracts that have already 

been designated SPDCs. We urge the Commission to move forward carefully, to prevent an 

adverse impact on the natural gas market or market participants through its designations of 

SPDCs. 

In addition, given the unknown repercussions of SPDC designations, FIEG believes that the 

Commission should allow additional time for public comment to allow and encourage all natural 

gas market participants to contemplate the effect of such designation, given the large number of 

contracts that would be designated as SPDCs. Additional time for public comment will ensure 

that the Commission designates SPDCs in such a way as to minimize the impact on the market, 

and provide additional transparency into these contracts. To impose the designation without 

allowing all affected market participants the opportunity to evaluate the impact on their market 

exposure will cause unnecessary market volatility. · 

We recognize that the ICE Contracts that the Commission has identified as possible SPDCs are 

spreads and that one leg settles against the NYMEX physically-delivered Henry Hub natural gas 

contract. However, we question the significance of this insofar as all ofthese contracts trade as 

locational spreads and a key component of the contract is the non-NYMEX leg. Also, since 

these ICE Contracts are all cash settled, we submit that the relevant price that people look to is 

not the ICE Contract but the underlying physical contract (e.g. Platts) that is the price against 

which the ICE Contract settles. This is particularly true for these basis contacts, which rely on 

prices set by actual physical trades in various locations. The bids, offers, or transactions in 

natural gas in physical locations are not "based on" or "determined by referencing, the prices 

generated by" any of the ICE Contracts. In fact, the ICE Contracts are priced based on the 

results of physical demand and supply in the natural gas markets. The ICE markets do not, and 

cannot, influence the physical demand for natural gas, therefore, the only factors that influence 

the price of natural gas is the available supply of natural gas and the demand for natural gas. 

The second basis for the Commission's determination is that the ICE Contracts serve as a 

material price reference, recognizing that the Commission may consider either direct or indirect 

evidence that the contract is a material price reference. There is no direct evidence or even any 

indication that the NYMEX or any other cash markets quote the ICE Contracts for prices. 

Furthermore, other than its own publications, no third-party publications reference ICE prices for 

cash settled contracts. Therefore, the ICE Contracts do not appear to serve as a material price 

reference to the NYMEX Contracts. 

To establish material liquidity, the Commission must consider whether the trading volume of the 

ICE Contracts is "sufficient to have a material effect on other agreements, contracts, or 

transactions listed for trading ... on a designated contract market." Since these basis contracts 

trade on a differential, they cannot have a material effect on NYMEX contracts, while only 

representing one leg (and not the relevant leg) ofthe locational spread. 

Furthermore, in the context of the overall natural gas market, the trading average for the ICE 

contracts was only a small part of the overall number of transactions closed each day for natural 

gas. Indeed, some of the ICE Contracts, recognizing they are spread out over months, do not 

even meet the Commission's minimum reporting thresholds. Moreover, as the Commission must 

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recognize, a minimum low threshold for reporting should not be the same as the threshold for 

material liquidity. The Commission stated that "[l]iquidity is a broad concept that captures the 

ability to transact immediately with little or no price concession," also noting that a continuous 

stream of prices can be observed in markets with material liquidity. Therefore, the Commission 

should not aggregate trades that occur over many months to determine whether a contract has 

met the threshold for material liquidity. Since other natural gas contracts, either listed on an 

, exchange or traded in the over-the-counter market, do not reference, directly or indirectly, the 

ICE Contracts, even if only a few trades per trading period constituted adequate liquidity, the 

ICE Contracts do not have a material effect on natural gas contracts. 

FIEG respectfully requests that the Commission carefully consider the ramifications of 

designating the ICE Contracts as SPDCs, as well as give natural gas market participants more 

time to fully analyze the impact of the designation ofthese ICE Contracts as SPDCs. To do so, 

we strongly urge the Commission to delay its determination as to whether the ICE Contracts are 

SPDCs, until the Commission has fully reviewed the effects of such a determination on the 

natural gas market and natural gas market participants. 

While we recognize that comments were to be submitted by October 26, 2009, FIEG appreciates 

the opportunity to provide these comments and requests that the Commission include our 

comments as part of the record for the Commission's consideration. 

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Sincerely, 

Is/ Kenneth M. Raisler 

Kenneth M. Raisler 

Sullivan & Cromwell LLP 

125 Broad St. 

New York, NY 10004 

(212) 558-4675 

raislerk@sullcrom .com