Washington, 7 May 2010

The U.S. Senate has added strong new anti-manipulation language to the derivatives and financial reform legislation currently under consideration. Authored by Senator Maria Cantwell (D-WA), the amendment changes the anti-manipulation standard that the U.S. Commodity Futures Trading Commission (CFTC) must meet in enforcement actions to parallel the standard that applies to comparable cases filed by the U.S. Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC) and the Federal Trade Commission (FTC).  Currently, the Commodity Exchange Act (CEA) requires the CFTC to satisfy a legal standard that is so difficult that the agency has only proven one successful case of manipulation in the past 35 years.  The new legal standard, if adopted, would make it easier for the CFTC to prove violations of the CEA.

Introducing the amendment, Senator Cantwell stated: Current law makes it very difficult for the Commodity Futures Trading Commission to prove market manipulation.  The CFTC has to prove that someone had specific intent to manipulate, and that is a very difficult standard to prove.  Most individuals don't write an e-mail, for example, saying they intend to manipulate prices, but that is currently what the law requires the Commodity Futures Trading Commission to prove:  “specific intent'” to manipulate.

By explicitly adopting the legal standard for manipulation that is used by the SEC, FERC and FTC, Senator Cantwell intends to establish “a strong and clear legal standard that allows regulators to successfully go after reckless and manipulative behavior.”  Senator Cantwell noted that in the past five years, FERC has used its relatively new enforcement authority to conduct 135 investigations, which resulted in 41 settlements involving civil penalties or other monetary remedies totaling nearly $50 million.

The Senate is expected to continue debating the derivatives and financial reform legislation for another week.  If the Senate approves the bill, it would need to be reconciled with similar legislation passed by the House of Representatives last year before it could be sent to the president to be signed into law.

Ends --

Gregory Mocek, McDermott Will & Emery