On September 17, 2015, FERC issued a notice of proposed rulemaking ("NOPR") that seeks to require each regional transmission organization ("RTO") and independent system operator ("ISO") to deliver to FERC electronic data on an ongoing basis from their respective market participants that would (1) list their "Connected Entities," (2) describe the nature of the relationship with each Connected Entity, and (3) identify each market participant using a common alpha-numeric identifier. Among other reasons, FERC stated that the data would assist FERC in screening and investigating cases involving market manipulation by providing the Office of Enforcement with a more complete view of the relationships between market participants and the incentives underlying their trading activities.
In order to incorporate the new data submission requirement, FERC proposes that each RTO and ISO make a compliance filing setting forth in their respective tariffs a requirement that market participants submit a list of their Connected Entities. FERC proposes that any Connected Entity would include (1) an entity that directly or indirectly owns, controls, or holds with power to vote, 10% or more of the ownership instruments of a market participant, or an entity 10% or more of whose ownership instruments are owned, controlled, or held with a power to vote, directly or indirectly, by a market participant; (2) the chief executive officer, chief financial officer, chief compliance officer, and the traders of a market participant; (3) an entity that is the holder of a debt interest or structured transaction that gives it the right to share in the market participant's profitability above a de minimis amount; or (4) entities that have entered into an agreement with a market participant that relates to the management of resources that participate in FERC-jurisdictional markets, such as tolling agreements and management agreements. FERC explained that understanding the relationships between all such entities is critical to understanding the purposes behind trading patterns. Thus, FERC concluded that exploring the relationships between market participants and Connected Entities would assist in monitoring market manipulation and other market behavior. Furthermore, FERC stated that the proposed rule would aid market monitors in assessing cross-market transactions and would aid FERC in the ex post analysis of its market-based rate program.
In addition, FERC proposes establishing Legal Entity Identifiers ("LEIs"), 20-digit alpha-numeric codes unique to each legal entity. The U.S. Commodity Futures Trading Commission and the U.S. Securities Exchange Commission already require LEIs for certain swaps-related activities. Under FERC's NOPR, RTOs and ISOs would require market participants to obtain LEIs and to report their own LEIs and the LEIs of their Connected Entities in their Connected Entity data filing. According to FERC, requiring the submission of these LEIs would establish a standard identification system that would greatly benefit FERC staff's ability to conduct investigations of trading patterns in energy markets.
In a concurring statement, Commissioner Cheryl LaFleur encouraged market participants to submit comments on the proposed rule addressing the benefits of the proposed regulation and the incremental costs or burdens that would be created by the new reporting requirement. Additionally, FERC encouraged market participants in the NOPR to submit comments on whether FERC should expand the proposed rule to require the submission of Connected Entity information from non-RTO/ISO market participants.
Comments on the NOPR are due 60 days after publication in the Federal Register. A copy of the NOPR is available here.
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