FTC says: Don’t be bad

To the casual observer it might seem like the whole world has gone on a big energy markets regulation kick. Speculators are under scrutiny in the US and the UK, and now it seems that carrying on in a fraudulent way in oil and related markets is officially a very, very bad thing to do in the US.

Yes, we thought it already was illegal too, but apparently not. The US Federal Trade Commission has issued a final ruling that, under the 2007 Energy Independence and Security Act, it will indeed prohibit fraudulent activity in gasoline, crude or distillate markets. This includes submitting fraudulent information on said markets to government agencies, or deliberately withholding information with a view to manipulating the markets.

Whew. Glad we got that sorted out.

Oh, and if you do undertake such activities, you’ll be fined $1m a day. But only if you do it knowingly. And you have three months to prepare for that: it doesn’t come into effect until early November.

Even cash market dealers targeted by the rules didn’t appear to be impressed. One told Reuters:

“Well, I have not seen the full details but to be honest one would have thought they should have been doing this sort of policing already. Like all of these agencies, none of them appears to be doing what is expected of them.”

The full ruling is here but be warned, it is dry even for a document of this genre, and basically boils down to: don’t be bad.

As for how it relates to the CFTC review that is under way, well, it’s fairly tangential. The CFTC is concerned with speculators (who are fairly widely acknowledged, even by detractors, to serve at least some useful purpose in futures markets). It is looking at taking specific measures in energy commodities markets, such as extending the period of time during which position limits on futures contracts are imposed, or enforcing limits more strictly, and changing the way exemptions are granted. But as the FTC ruling refers to knowingly giving misinformation to a government agency, it would presumably be able to take action against anyone who misled the CFTC:

“…although the Commission recognizes the CFTC’s jurisdiction “with
respect to accounts, agreements . . . and transactions involving contracts of sale of a commodity for future delivery,” the Commission declines to adopt a blanket safe harbor for futures markets activities. Nonetheless, 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 – as stated in the NPRM and the RNPRM – the Commission intends to work cooperatively with the CFTC to execute the Commission’s objective to prevent fraud or deceit in wholesale petroleum markets.”

Related links:

Speculation crackdown: Is regulatory arbitrage a threat? (FT Energy Source)

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