In an open meeting this morning, the CFTC finalized five Dodd-Frank rules, including the anti-fraud and manipulation rules required by Dodd-Frank section 753. The new rule expands the Commissions current enforcement powers, which were recently characterized by Washington Senator Maria Cantwell as “probably one of the weakest statutes to try to go after manipulation.” According to Chairman Gary Gensler, the stricter rule “closes a significant gap, as it will broaden the types of cases we can pursue and improve the chances of prevailing over wrongdoers.”
The new rule, 17 CFR Part 180, “prohibits manipulative and deceptive devices and contrivances, employed intentionally or recklessly, regardless of whether the conduct in question was intended to or did create an artificial price.” Previously, manipulation needed to be intentional and successful to fall afoul of regulation. The CFTC has included an exception for good-faith mistakes and straightforward negligence. The rule also clarifies the Commission’s authority to prohibit price manipulation on commodities and swaps.
The language contained in the new Dodd-Frank anti-manipulation rule will make it easier for the CFTC to pursue manipulation cases. In its over thirty-year history the Commission has only won a single manipulation cases, though it has settled others out of court. Expanding the regulation to recklessness removes the burden to prove intent from the enforcement team. Anti-manipulation measures are wildly popular, especially in light of the recent oil price spikes.
This morning’s meeting also yielded final rules on the definition of an agricultural commodity, protection of consumer information and privacy, and regulations on large trader reporting requirements on physical commodity swaps. Details on each proposal can be found on the CFTC website, www.cftc.gov.