United States: CFTC Energy And Environmental Markets Advisory Committee Meeting

Last Updated: March 8 2016
Article by Athena Y. Eastwood, Neal E. Kumar, Michael Selig and Paul J. Pantano, Jr.

Most Read Contributor in United States, August 2018

On February 25, 2016, the Commodity Futures Trading Commission's ("CFTC") Energy and Environmental Markets Advisory Committee ("EEMAC") convened its first public meeting of the year. During the first of two panel discussions, the EEMAC considered the CFTC's proposed order granting exemptive relief for certain transactions offered or sold in markets administered by the Southwest Power Pool ("SPP") from provisions of the Commodity Exchange Act ("CEA") and CFTC regulations. During the second panel, the EEMAC discussed CFTC Staff's "Preliminary Report on the Swap Dealer De Minimis Exception."1 The meeting concluded with a presentation of the EEMAC's "Report on EEMAC's 2015 Review and Consideration of the CFTC's Proposed Rule on Position Limits."2

Opening Remarks

Commissioner Giancarlo, the EEMAC's sponsor, opened the meeting expressing "grave concern about severe declines in the price of physical commodities," which, he noted, "are at their weakest levels in 43 years." Given these market conditions, Giancarlo urged his fellow Commissioners to regulate in a manner that does not generate legal uncertainty or interfere with market participants' ability to hedge against declining prices. For example, the CFTC's proposed order exempting certain transactions in the market administered by SPP from provisions of the CEA and CFTC rules includes language in its preamble suggesting that the CFTC will permit private parties to bring suit under CEA Section 22, which may disrupt "coordination and certainty in the regulation of the electricity markets."3 Furthermore, Giancarlo noted the need to "provide market participants some certainty about the fate of the swap dealer de minimis level." Finally, he averred that "the U.S. District Court has concluded that the CFTC is not under any unambiguous mandate to impose position limits. Therefore, . . . the CFTC should not, and need not, finalize its current position limits proposal."

Chairman Massad followed, noting the importance of CFTC Staff's "Preliminary Report on the Swap Dealer De Minimis Exception" as a major step forward in the CFTC's data collection efforts. Commissioner Bowen opined that "we should be hesitant to change course, unless, as the rulemaking noted, 'subsequent developments in the markets or the evaluation of the new data' provide clear, overwhelming evidence that the $3 billion threshold is a mistake." She also expressed her hope to finalize the position limits rule as soon as possible.

Panel 1: Do Commission Exemptions for RTO/ISOs Transactions Strike the Right Balance?

The first panel addressed the CFTC's proposed order exempting certain transactions in markets administered by SPP from provisions of the CEA and CFTC regulations.4 The panelists focused almost exclusively on text in the preamble to the proposed order suggesting that the CFTC intends to permit private parties to bring claims under CEA Section 22 and that the CFTC intended the same private rights of action in previous orders granting a similar exemption to other regional transmission operators ("RTO") and independent system operators ("ISO").

Commissioner Kenneth W. Anderson, Jr. of the Public Utility Commission of Texas ("PUCT") testified in support of the proposed order, but argued that "retaining private causes of action and opening up the previous orders would be difficult and unnecessary." He noted that private causes of action will allow for collateral attacks on the rules and processes of RTOs and ISOs, the Federal Energy Regulatory Commission ("FERC"), and the PUCT. Federal courts may interpret these rules inconsistently in litigated matters throughout the country, shrouding electricity markets in regulatory uncertainty. Jeff Walker, Senior Vice President & Chief Risk Officer of ACES, echoed these concerns, explaining that there are numerous hedging scenarios that can result in private suits in federal court, the merits of which will be decided very differently across jurisdictions.

Paul J. Pantano, Jr., representing ISO-RTO commenters, noted that prior CFTC exemptive orders almost always did not retain private rights of action, and the only two examples where the CFTC retained private rights of action were overridden by Congress shortly thereafter. He highlighted that granting a right of action to private litigants will result in needless jurisdictional disputes amongst the regulatory agencies, hindering the CFTC's ability to take enforcement action against wrongdoers in a controlled manner. He added that private rights of action may harm the memorandum of understanding between the CFTC and FERC.

EEMAC members expressed general consensus that allowing private suits will diminish regulatory certainty in the energy markets and impact liquidity. Chairman Massad expressed his appreciation for the panelists' desire for more certainty, but explained that administrative decisions are often litigated in federal court, which may at times create regulatory uncertainty.

Panel 2: CFTC Staff Swap Dealer De Minimis Exception Preliminary Report

The second panel focused on the preliminary report issued by CFTC Staff on the swap dealer de minimis exception. The preliminary report authored by CFTC Staff highlighted a number of concerns about the swap data that it is currently receiving. The Division of Market Oversight ("DMO") noted that it received twenty-four comments on the preliminary report, with the majority in favor of setting the swap dealer de minimis threshold at $8 billion or more. DMO said that CFTC Staff will review and analyze all of the comments and then draft a Final Report on the exception.

Next, the Commercial Energy Working Group and Commodity Markets Council presented their recommended approach to the panel. The groups maintained that the CFTC should issue an interim final rule setting the de minimis threshold at $8 billion. Prior to evaluating changes to the $8 billion de minimis threshold, the panel recommended that the CFTC take steps to improve its swap data collection, identify regulatory objectives that are not sufficiently met with the $8 billion threshold, and issue a final capital rule. They noted that the CFTC currently lacks the information necessary to make an informed decision about the de minimis threshold. Members of the EEMAC expressed concern that setting the level too low may diminish available liquidity as market participants attempt to manage the lower threshold. The liquidity decrease may raise bid-ask spreads, and increase concentration of market share amongst select institutions. Members also added that the Technology Advisory Committee's proposal to reestablish the Data Standardization Subcommittee will address a number of the data collection issues and allow for more precision in setting the threshold.

Presentation of the EEMAC's Report

The EEMAC presented a report of its members recommending that the CFTC not finalize its proposal to establish position limits on certain futures and swaps.5 The report highlights that there is no evidence that position limits are "necessary," as required under the CEA. In addition, there are concerns about a sharp reduction in trading liquidity in physical and derivative markets, which adversely would impact the ability of end users to hedge risk. The report further states that implementing new federal position limits would impose practical challenges that should instead be addressed by relying on existing resources and expertise. Finally, the report issues the following recommendations in the event that the CFTC nevertheless moves forward with a position limits rule: (1) address flaws to the definition of bona fide hedging; (2) only impose position limits in the spot month; (3) update deliverable supply estimates in order to accurately identify the size of a spot month limit; and (4) rely on the exchanges to grant non-enumerated hedge exemptions and administer position accountability levels.

The EEMAC voted to approve the report with eight members voting to approve and one member voting to dissent. The dissenting member issued a dissenting report contending that the published report was not a collaborative effort reflective of all nine members of the EEMAC.6 Furthermore, the dissenting report asserts that the report's arguments that positions limits are unnecessary, are based on selective arguments and ignore research on certain topics. Finally, the dissenting report contends that the CFTC, and not the for-profit exchanges, should play a central role in establishing position limits and evaluating exemptions.

Chairman Massad opined that "being opposed to position limits is like being opposed to speed limits because they make you late for work" and encouraged his fellow Commissioners to move forward with the rulemaking.


1 Cadwalader addressed the Preliminary Report in a previous Clients & Friends Memo, available here.

2 The Report is available here.

3 See also Aspire Commodities, LP v. GDF Suez Energy North America, Inc., Civil Action No. H–14–1111, 2015 WL 500482 (S.D. Tex. Feb. 3, 2015) (holding that plaintiffs could not rely on the CEA's private right of action to challenge conduct that occurred entirely within ERCOT because this right was included in the broad CEA provision exclusions). Cadwalader covered the decision of the U.S. District Court for the Southern District of Texas in Aspire Commodities v. GDF Suez Energy North America in a subsequent Clients & Friends Memo, available here.

4 See Notice of Proposed Order and Request for Comment on an Application for an Exemptive Order from Southwest Power Pool, Inc. from Certain Provisions of the Commodity Exchange Act Pursuant to the Authority Provided in Section 4(c)(6) of the Act, 80 Fed. Reg. 29,490 (May 21, 2015).

5 See Position Limits for Derivatives and Aggregation of Positions, 80 Fed. Reg. 10,022 (Feb. 25, 2015).

6 The Dissent is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions