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CFTC's challenge to FERC jurisdiction over futures market manipulation

08 February 2013

Philip McBride Johnson on dispute between the CFTC and FERC.

Read more: CFTC FERC regulators NYMEX

So, the Commodity Futures Trading Commission (CFTC) has formally challenged a proceeding brought by the Federal Energy Regulatory Commission (FERC) against an energy trader for allegedly manipulating the price of energy futures contracts on the New York Mercantile Exchange (NYMEX).

Some people will characterize this dispute as a simple "turf war" between power-hungry government regulators and another example of wasted tax dollars.

FERC's rationale appears to be that NYMEX futures prices have an indirect impact on physical energy prices over which FERC has unquestioned jurisdiction. That agency could have simply referred the futures matter to the CFTC for investigation and action, while pursuing its own case for physical price manipulation, but elected not to do so for some reason.


 Johnson: CFTC jurisdiction makes sense

When the CFTC was first created in 1974, I led the effort to vest it with "exclusive jurisdiction" over all futures activity regardless of the nature of the underlying asset, and the Congress agreed. Our motivation was to fend off a barrage of demands from other federal, state and local authorities claiming the right to intervene because one of their "commodities" was somehow involved.

For decades thereafter, other federal, state and local authorities made no attempt to challenge that clear mandate, and the futures community enjoyed the certainty and economy of answering to a single regulator with a single set of requirements. The cost savings, alone, are incalculable.

If successful, FERC will nullify that regulatory structure and open the flood gates for similar "indirect impact" claims by scores of agencies that are involved with the physical assets underlying futures contracts, everything from copper to crude oil to corn and cotton.

Futures on financial instruments would be exposed to demands from bank, securities and insurance regulators at every level, and climate-related futures could fall within federal, state and local environmental controls.

Exclusive CFTC jurisdiction makes sense, assures uniform regulation, and saves money for both the futures industry and the taxpayer. It is regrettable that this confrontation has become necessary between FERC and the CFTC, but the stakes are simply too high to ignore.

Philip McBride Johnson is a former chariman of the CFTC

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