Prohibitions on Market Manipulation in Subtitle B of Title VIII of The Energy Independence and Security Act of 2007, 18304-18329 [E9-9224]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 74, Number 76 (Wednesday, April 22, 2009)]
[Proposed Rules]
[Pages 18304-18329]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9224]


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FEDERAL TRADE COMMISSION

16 CFR Part 317

[Project No. P082900]
RIN 3084-AB12


Prohibitions on Market Manipulation in Subtitle B of Title VIII 
of The Energy Independence and Security Act of 2007

AGENCY: Federal Trade Commission.

ACTION: Revised notice of proposed rulemaking; request for public 
comment.

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SUMMARY: Pursuant to Section 811 of Subtitle B of Title VIII of The 
Energy Independence and Security Act of 2007 (``EISA''),\1\ the Federal 
Trade Commission (``Commission'' or ``FTC'') is issuing a Revised 
Notice of Proposed Rulemaking (``RNPRM''). The revised proposed Rule in 
this RNPRM would prohibit any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, from knowingly engaging in any act, 
practice, or course of business--including the making of any untrue 
statement of material fact--that operates or would operate as a fraud 
or deceit upon any person, or intentionally failing to state a material 
fact that under the circumstances renders a statement made by such 
person misleading, provided that such omission distorts or tends to 
distort market conditions for any such product. Violations of the 
revised proposed Rule, if such Rule is adopted, would require proof by 
a preponderance of the evidence. Anyone violating an FTC rule 
promulgated under Section 811 of EISA, such as this revised proposed 
Rule would be if adopted, may face civil penalties of up to $1 million 
per violation per day, in addition to any relief available to the 
Commission under the Federal Trade Commission Act (``FTC Act'').\2\ The 
Commission invites written comments on issues raised by the revised 
proposed Rule and seeks answers to the specific questions set forth in 
Section IV.I. of this RNPRM.
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    \1\ Section 811 is part of Subtitle B of Title VIII of EISA, 
which has been codified at 42 U.S.C. 17301-17305.
    \2\ 15 U.S.C. 41-58.

DATES: Written comments must be received by May 20, 2009. The 
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Commission does not contemplate any extensions of this comment period.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Market 
Manipulation Rulemaking, P082900'' to facilitate the organization of 
comments. Please note that your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including on the publicly accessible FTC website, at (https://www.ftc.gov/os/publiccomments.shtm).
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other state 
identification number or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential,'' as provided in Section 6(f) 
of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2).

[[Page 18305]]

Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c), 16 CFR 
4.9(c).\3\
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    \3\ See also FTC Rule 4.2(d), 16 CFR 4.2(d). The comment must be 
accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).
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    Because paper mail in the Washington area, and specifically to the 
FTC, is subject to delay due to heightened security screening, please 
consider submitting your comments in electronic form. Comments filed in 
electronic form should be submitted by using the following weblink: 
(https://secure.commentworks.com/ftc-marketmanipulationRNPRM), (and 
following the instructions on the web-based form). To ensure that the 
Commission considers an electronic comment, you must file it on the 
web-based form at the weblink (https://secure.commentworks.com/ftc-marketmanipulationRNPRM). If this RNPRM appears at (https://www.regulations.gov/search/index.jsp), you may also file an electronic 
comment through that website. The Commission will consider all comments 
that regulations.gov forwards to it. You may also visit the FTC website 
at (https://www.ftc.gov/opa/2009/04/rnprm.shtm) to read the RNPRM and 
the news release describing it.
    A comment filed in paper form should include the ``Market 
Manipulation Rulemaking, P082900'' reference both in the text and on 
the envelope, and should be mailed to the following address: Federal 
Trade Commission, Market Manipulation Rulemaking, P.O. Box 2846, 
Fairfax, VA 22031-0846. This address does not accept courier or 
overnight deliveries. Courier or overnight deliveries should be 
delivered to: Federal Trade Commission/Office of the Secretary, Room H-
135 (Annex G), 600 Pennsylvania Avenue, N.W., Washington, DC 20580.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. The Commission will consider all timely and responsive 
public comments that it receives, whether filed in paper or electronic 
form. Comments received will be available to the public on the FTC 
website, to the extent practicable, at (https://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments on the 
FTC website. More information, including routine uses permitted by the 
Privacy Act, may be found in the FTC's privacy policy, at (https://www.ftc.gov/ftc/privacy.shtm).

FOR FURTHER INFORMATION CONTACT: Patricia V. Galvan, Deputy Assistant 
Director, Bureau of Competition, Federal Trade Commission, 600 
Pennsylvania Avenue, N.W., Washington, DC 20580, (202) 326-3772.

SUPPLEMENTARY INFORMATION:

I. Background

    EISA became law on December 19, 2007.\4\ Subtitle B of Title VIII 
of EISA targets market manipulation in connection with the purchase or 
sale of crude oil, gasoline, or petroleum distillates at wholesale, and 
the reporting of false or misleading information related to the 
wholesale price of those products. Specifically, Section 811 prohibits 
``any person'' from ``directly or indirectly'': (1) using or employing 
``any manipulative or deceptive device or contrivance,'' (2) ``in 
connection with the purchase or sale of crude oil gasoline or petroleum 
distillates at wholesale,'' (3) that violates a rule or regulation that 
the FTC ``may prescribe as necessary or appropriate in the public 
interest or for the protection of United States citizens.''\5\
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    \4\ 42 U.S.C. 17001-17386.
    \5\ 42 U.S.C. 17301.
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    Section 812 prohibits ``any person'' from reporting information 
that is ``required by law to be reported''--and that is ``related to 
the wholesale price of crude oil gasoline or petroleum distillates''--
to a federal department or agency if the person: (1) ``knew, or 
reasonably should have known, [that] the information [was] false or 
misleading;'' and (2) intended such false or misleading information 
``to affect data compiled by the department or agency for statistical 
or analytical purposes with respect to the market for crude oil, 
gasoline, or petroleum distillates.''\6\
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    \6\ 42 U.S.C. 17302.
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    Subtitle B also contains three additional sections that address, 
respectively, enforcement of the Subtitle (Section 813),\7\ penalties 
for violations of Section 812 or any FTC rule published pursuant to 
Section 811 (Section 814),\8\ and the interplay between Subtitle B and 
existing laws (Section 815).\9\
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    \7\ Section 813(a) provides that Subtitle B shall be enforced by 
the FTC ``in the same manner, by the same means, and with the same 
jurisdiction as though all applicable terms of the [FTC] Act (15 
U.S.C. 41 et seq.) were incorporated into and made a part of 
[Subtitle B].'' Section 813(b) provides that a violation of any 
provision of Subtitle B ``shall be treated as an unfair or deceptive 
act or practice proscribed under a rule issued under [S]ection 
18(a)(1)(B) of the [FTC] Act (15 U.S.C. 57a(a)(1)(B)).'' 42 U.S.C. 
17303.
    \8\ Section 814(a) of Subtitle B provides that--``[i]n addition 
to any penalty applicable'' under the FTC Act--``any supplier that 
violates [S]ection 811 or 812 shall be punishable by a civil penalty 
of not more than $1,000,000.'' Further, Section 814(c) provides that 
``each day of a continuing violation shall be considered a separate 
violation.'' 42 U.S.C. 17304.
    \9\ Section 815(a) provides that nothing in Subtitle B ``limits 
or affects'' Commission authority ``to bring an enforcement action 
or take any other measure'' under the FTC Act or ``any other 
provision of law.'' Section 815(b) provides that ``[n]othing in 
[Subtitle B] shall be construed to modify, impair, or supersede the 
operation'' of: (1) any of the antitrust laws (as defined in Section 
1(a) of the Clayton Act, 15 U.S.C. 12(a)), or (2) Section 5 of the 
FTC Act ``to the extent that . . . [S]ection 5 applies to unfair 
methods of competition.'' Section 815(c) provides that nothing in 
Subtitle B ``preempts any State law.'' 42 U.S.C. 17305.
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    The revised proposed Rule in this RNPRM retains the anti-fraud 
approach of the initial proposed Rule published by the Commission in a 
Notice of Proposed Rulemaking (``NPRM'') on August 19, 2008.\10\ The 
revised proposed Rule would achieve the anti-manipulation objectives of 
Section 811 by prohibiting any person, directly or indirectly, in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale, from (a) knowingly engaging in any 
act, practice, or course of business--including the making of any 
untrue statement of material fact--that operates or would operate as a 
fraud or deceit upon any person, or (b) intentionally failing to state 
a material fact that under the circumstances renders a statement made 
by such person misleading, provided that such omission distorts or 
tends to distort market conditions for any such product.\11\
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    \10\ FTC, Prohibitions On Market Manipulation and False 
Information in Subtitle B of Title VIII of The Energy Independence 
and Security Act of 2007, 73 FR 48317 (Aug. 19, 2008). The NPRM was 
preceded by the publication for comment of an Advance Notice of 
Proposed Rulemaking (``ANPR''). FTC, Prohibitions On Market 
Manipulation and False Information in Subtitle B of The Energy 
Independence and Security Act of 2007, 73 FR 25614 (May 7, 2008).
    \11\ As the Commission stated in the ANPR and the NPRM, the 
phrase ``crude oil gasoline or petroleum distillates'' is used 
without commas in Section 811 (as well as in the first clause of 
Section 812), while the phrase is used with commas in Section 
812(3): ``crude oil, gasoline, or petroleum distillates.'' The 
absence of commas is presumably a non-substantive, typographical 
error; therefore, the Commission reads all parts of both sections to 
cover all three types of products: crude oil, gasoline, and 
petroleum distillates. See 73 FR at 25621 n.59; 73 FR at 48320 n.40.

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[[Page 18306]]

    The Commission believes additional public comment on the revised 
proposed Rule will assist in evaluating the desirability and contours 
of any final rule. The Commission requests that comments focus on 
changes between the initially proposed Rule and the revised proposed 
Rule. The Commission also invites written responses to, and comments 
on, the questions and alternative rule language posed in Section IV.I. 
Because the public has already had the opportunity to comment on many 
of the concepts contained in this revised proposed Rule--through both 
written comments and workshop presentations and participation--the 
Commission believes that a 30-day comment period is appropriate, and 
requests for extension of the comment period are unlikely to be 
granted.

II. The Rulemaking Proceeding

    The rulemaking proceeding began with the publication of an ANPR on 
May 7, 2008.\12\ In the ANPR, the Commission solicited comments on 
whether it should publish a rule under Section 811, and, if so, the 
appropriate scope and content of such a rule.\13\ In response to the 
ANPR, the Commission received 155 comments from interested parties.\14\ 
Commenters expressed differing views regarding the desirability of, and 
appropriate legal basis for, any such rule. Commenters also proposed a 
variety of models upon which to base a market manipulation rule, 
including those used by other federal agencies, such as the Securities 
and Exchange Commission (``SEC''),\15\ the Federal Energy Regulatory 
Commission (``FERC''),\16\ and the Commodity Futures Trading Commission 
(``CFTC''),\17\ pursuant to each agency's respective market 
manipulation authority.
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    \12\ 73 FR 25614. Rulemaking documents can be found at (https://www.ftc.gov/ftc/oilgas/rules.htm).
    \13\ 73 FR at 25620-24. The comment period for the ANPR closed 
on June 23, 2008, after the Commission granted an extension 
requested by a major industry trade association. Letter from the 
American Petroleum Institute to FTC Secretary Donald S. Clark, (May 
19, 2008), available at (https://www.ftc.gov/os/comments/marketmanipulation/index.shtm).
    \14\ Attachment C contains a list of commenters who submitted 
comments on the ANPR, together with the abbreviations used to 
identify each commenter referenced in this RNPRM. Electronic 
versions of the comments can be found at (https://www.ftc.gov/os/comments/marketmanipulation/index.shtm).
    \15\ See Securities Exchange Act of 1934 (``SEA'') 10(b), 15 
U.S.C. 78j(b); 17 CFR 240.10b-5 (``Rule 10b-5'').
    \16\ See Natural Gas Act 4A, 15 U.S.C. 717c-1; Federal Power Act 
222, 16 U.S.C. 791a; Prohibition of Natural Gas Market Manipulation, 
18 CFR 1c.1; Prohibition of Electric Energy Market Manipulation, 18 
CFR 1c.2.
    \17\ See Commodity Exchange Act (``CEA'') 9(a)(2), 7 U.S.C. 
13(a)(2).
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    After reviewing the ANPR comments, on August 19, 2008, the 
Commission published an NPRM, setting forth the text of a proposed Rule 
and inviting written comments on issues raised by the proposed 
Rule.\18\ The NPRM described the basis for and scope of the proposed 
Rule; definitions of terms in the Rule; conduct prohibited by the Rule; 
and the elements of a cause of action under the Rule. The NPRM also set 
forth questions designed to elicit further information from interested 
parties. In response to a petition from a major trade association,\19\ 
the Commission extended the deadline for submission of comments on the 
NPRM from September 18, 2008 to October 17, 2008.\20\
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    \18\ 73 FR 48317.
    \19\ Letter from the American Petroleum Institute to FTC 
Secretary Donald S. Clark, (Sept. 5, 2008), available at (https://www.ftc.gov/os/comments/marketmanipulation2/538416-00006.pdf).
    \20\ FTC, Prohibitions On Market Manipulation and False 
Information in Subtitle B of Title VIII of The Energy Independence 
and Security Act of 2007, 73 FR 53393 (Sept. 16, 2008).
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    In response to the NPRM, the Commission received 34 comments from 
interested parties, including consumers, a consumer advocacy group, 
academics, a federal agency, state government agencies, a Member of 
Congress, industry members, and trade and bar associations.\21\ On 
November 6, 2008, Commission staff held a one-day public workshop on 
the proposed Rule.\22\ Commenters and workshop participants provided 
valuable feedback on several key issues relating to the proposed Rule, 
particularly regarding the application of a rule based on SEC Rule 10b-
5 and the relevance of legal precedent under securities law to the 
petroleum industry. An overview of the major issues reflected in the 
comments and at the workshop follows.
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    \21\ Attachment A contains a list of commenters who responded to 
the NPRM, together with the abbreviations used to identify each 
commenter. In calculating the number of comments submitted in 
response to the NPRM, the Commission treated the multiple filings 
from Argus, CFA, CFDR, ISDA, and NPRA as a single comment for each 
commenter.
    \22\ Attachment B contains a list of participants in the 
workshop, together with the abbreviations used to identify each 
workshop participant. The discussion topics for the workshop 
included the use of SEC Rule 10b-5 as a model for an FTC market 
manipulation rule; the proper scienter standard for a rule; the 
appropriate reach of a rule; the type of conduct that would violate 
a rule; and the desirability of including market or price effects as 
an element of a rule violation. Information relating to the 
workshop, including a program, transcript, and archived webcast, can 
be found at (https://www.ftc.gov/bcp/workshops/marketmanipulation/index.shtml).
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    Many commenters expressed general support for an anti-fraud rule, 
noting that fraud provides a ``good demarcation'' for a market 
manipulation rule and would provide the necessary guidance to market 
participants.\23\ Although a few commenters affirmatively supported the 
Commission's proposed Rule, as articulated in the NPRM,\24\ the 
majority of commenters raised concerns about the scope and application 
of the proposed Rule. Many commenters thought that the proposed Rule, 
as drafted, created a substantial risk of reaching and chilling 
legitimate conduct undertaken in the ordinary course of business.\25\
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    \23\ CFDR (Mills), Tr. at 38; see, e.g., API at 8-9 
(``[S]upport[ing] the Commission's initial determination that the 
scope of the rule should be `narrowly tailored to address fraudulent 
practices.''' (quoting 73 FR at 48320)); NPRA at 2 (stating that a 
rule should target fraudulent and deceptive practices); PMAA 
(Bassman), Tr. at 46-47 (explaining that, in general, fraud is an 
appropriate basis for a Section 811 rule); ATAA at 11 (expressing 
support for the Commission's decision to propose an anti-fraud 
rule); see also ISDA (Velie), Tr. at 40 (expressing support for an 
anti-fraud rule if it is coupled with specific intent); ABA Energy 
(McDonald), Tr. at 246 (urging the Commission to focus a rule on 
deceptive conduct).
    \24\ See, e.g., MS AG at 3 (``[T]he scope of the proposed Rule 
is well tailored to ensure that it will address . . . concerns 
without deterring desirable market practices that could ultimately 
benefit consumers.''); PMAA at 3 (``The proposed rule allows 
regulated entities to understand both its intent and how it will be 
applied . . . .''); CA AG at 2 (expressing support for the FTC's 
proposed Rule).
    \25\ See, e.g., Flint Hills at 3 (``[T]he breadth of the 
proposed rule would create a significant amount of uncertainty as to 
what conduct may be captured by the Rule, and could apply to 
completely legitimate conduct . . . .''); API at 9 (arguing that the 
proposed Rule ``would create substantial legal uncertainty for 
market participants'' that will ``deter[] firms from engaging in 
legitimate activity''); Sutherland at 2 (stating that the proposed 
Rule ``is considerably more intrusive of legitimate business 
behavior than is necessary''); Plains at 3 (``Given the general 
nature of the proposed rule and the uncertainties that will exist 
with respect to its scope and applicability, the imposition of 
liability without any finding of an effect on the market . . . will 
restrict legitimate market activity . . . .''); NPRA at 3 (stating 
that ``the proposed Rule falls far short of the Commission's goal'' 
of prohibiting ```manipulative and deceptive conduct without 
discouraging pro-competitive or otherwise desirable market 
practices''' (quoting 73 FR at 48323)) (emphasis added by 
commenter).
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    To remedy perceived shortcomings in the proposed Rule, some 
commenters suggested modifications, including: (1) rejecting SEC Rule 
10b-5 as a model for an FTC rule,\26\ and (2) making other

[[Page 18307]]

changes in the text of the proposed Rule.\27\ Commenters also offered 
recommendations regarding the elements of proof the Commission should 
require in order to establish a rule violation. Specifically, the 
commenters discussed: (1) whether a showing of recklessness should be 
sufficient to establish the requisite level of scienter required by a 
rule;\28\ (2) whether a showing of price effects should be required in 
order to prove a rule violation;\29\ and (3) whether prohibiting 
statements that are misleading because they omit material facts is 
appropriate for a rule that applies to wholesale petroleum markets.\30\
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    \26\ See, e.g., Sutherland at 4 (``We believe that the 
Commission is mistaken in proposing to adopt the [SEC Rule] 10b-5 
anti-fraud model . . . .''); API at 11 (arguing against borrowing, 
without modification, the language and precedent of Rule 10b-5); 
ISDA at 6 (stating that ``[s]ecurities precedent does not provide a 
helpful framework'' for creating a Section 811 rule); NPRA at 2 
(stating that an SEC-based rule is ``not an appropriate or workable 
model for an FTC market manipulation rule that applies to wholesale 
petroleum markets''); Plains at 2 (``The types of protective rules 
and doctrines that may be appropriate for the securities markets . . 
. cannot simply be applied without modification to the petroleum 
markets.'').
    \27\ See, e.g., NPRA at 17, 31 (recommending modifications to 
the proposed Rule's text and also suggesting alternative rule 
language); Navajo Nation at 7-9 (urging that the Commission define 
the term ``manipulative'' in the proposed Rule); API at 11 
(requesting that the Commission modify the text of the proposed Rule 
to account for differences between wholesale petroleum and 
securities markets).
    \28\ Many commenters urged the Commission to require a showing 
of specific intent instead of recklessness to prove a violation of 
an FTC rule. See, e.g., CFDR at 4 (recommending that an FTC rule 
require a ``[specific] intent to cause a false, fictitious and 
artificial impact on market prices or market activity''); ISDA at 3-
4 (urging the Commission to require proof of specific intent rather 
than recklessness); NPRA at 18 (stating that a recklessness standard 
is not appropriate for wholesale petroleum markets); Sutherland at 5 
(encouraging the Commission to require specific intent rather than 
recklessness); Muris at 11 (recommending that the Commission require 
proof of specific intent); see also Argus at 2 (stating that ``a 
specific intent requirement would encourage those who already 
provide market data to index publishers to continue to do so''); API 
at 16 (stating that the proposed Rule's recklessness standard ``is 
not sufficient . . . to `ensure that the proposed Rule does not 
chill competitive behavior''' (citing 73 FR at 48328)). But see, 
e.g., SIGMA at 2 (stating that the association is content with the 
scienter requirement that the FTC has adopted in its proposed Rule); 
MS AG at 3 (stating that ``both intentional and reckless conduct 
should be covered by the scienter requirement''); CAPP at 1 
(commending the Commission's proposed scienter requirement, which is 
designed to avoid chilling legitimate business behavior); ATAA at 12 
(expressing support for the FTC's proposed scienter requirement); 
PMAA at 3-4 (stating that the Commission's proposed elements of 
proof provide ``needed clarity''); CA AG at 2-3 (supporting the 
scienter standard proposed in the NPRM).
    \29\ Many commenters supported the showing of price effects as 
an element of a cause of action under an FTC market manipulation 
rule. See, e.g., Van Susteren at 2 (``The lack of a requirement of a 
showing of price effects to establish culpability leaves the rule 
overbroad and risks inconsistent or unwarranted enforcement efforts 
by the Commission.''); ISDA at 3-4 (asking that the Commission 
require proof of price effects); Muris at 2 (encouraging the 
Commission to adopt an effects requirement); see also Plains at 3 
(urging the Commission to make clear that only conduct that has a 
``manipulative effect on the relevant market'' will be actionable); 
API at 34 (recommending that the Commission require ``proof that a 
party's deceptive or fraudulent conduct caused market conditions to 
deviate materially from the conditions that would have existed but 
for that conduct''); Sutherland at 6 (urging the FTC to ``require 
that market manipulation actually impact the market''). But see, 
e.g., MS AG at 3 (asserting ``that proof of price effects should not 
be required to establish a violation''); ATAA at 12 (supporting the 
FTC's decision not to require proof of price effects); IPMA at 4 
(``[A]gree[ing] that the proposed Rule should not require proof of 
an identifiable price effect.''); CA AG at 3 (expressing support for 
the Commission's decision not to include an effects requirement).
    \30\ Several commenters argued that, although the proposed 
Rule's omissions language may be appropriate in securities markets, 
differences exist between securities and wholesale petroleum markets 
that make such language inapplicable to the latter. See, e.g., API 
at 25 (stating that unlike wholesale petroleum markets, securities 
markets are ``are governed by detailed disclosure obligations 
designed to protect unsophisticated investors''); Muris at 2 (urging 
the FTC to ``avoid importing broad disclosure requirements from 
highly regulated markets that simply have no place in wholesale 
petroleum markets''); NPRA at 4 (arguing that the full disclosure 
rationale underlying SEC Rule 10b-5 does not fit wholesale petroleum 
markets); Plains at 3 (stating that in the crude oil markets, unlike 
securities markets, ``there is no presumption that one market 
participant owes any duties to its counterparties that would require 
disclosure of any information'').
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    Commenters also presented varying views regarding the proper reach 
of an FTC market manipulation rule.\31\ A few commenters believed that 
the proposed Rule should reach conduct other than fraud, and these 
commenters suggested that the Commission should modify the focus of the 
proposed Rule\32\ or amend it to reach specific types of conduct.\33\ 
Most argued that an FTC market manipulation rule should not reach 
activity in futures markets.\34\ Several offered views as to whether an 
FTC rule should reach pipelines\35\ or renewable fuels, including 
ethanol.\36\ The Commission has considered these comments and, where 
appropriate, has revised the initial proposed Rule to address these 
concerns.
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    \31\ See, e.g., Boxer at 1 (advocating for a rule to reach ``oil 
traded on the [NYMEX] and ICE exchanges''); API at 22-23 (``[T]he 
Commission should, at a minimum, provide a safe harbor for 
statements or omissions that are not made in connection with 
`reporting . . . to government agencies, to third-party reporting 
services, and to the public through corporate announcements,' at 
least absent concrete evidence that such statements or omissions 
were part of a broader scheme to manipulate a market.'' (citing 73 
FR at 48326)); Platts at 8 (asking that the Commission adopt a safe 
harbor to alleviate concerns that the Commission could capture 
inadvertent errors under an FTC rule); see also Argus at 3 (``The 
FTC should also refrain from mandating any particular methodological 
approach for the assessment of spot markets in petroleum.'').
    \32\ See, e.g., Pirrong at 2 (asserting that the proposed Rule's 
focus on fraud and deceit is misguided and contending that market 
power is the biggest threat to efficiently functioning petroleum 
markets); CFA2 at 19 (urging the Commission to take ``vigorous 
action to reign in the speculative bubble'' in energy commodities 
markets); Consumer (urging the Commission to address excessive 
speculation in commodities markets); Navajo Nation at 3 (expressing 
concern that the proposed Rule may fall short in addressing 
manipulative conduct).
    \33\ See, e.g., NPCA at 1; MPA at 2; IPMA at 3-4 (requesting 
that the Commission treat an oil company's decision to sell only 
gasoline pre-blended with ethanol at the terminal rack as a 
potentially manipulative practice); Murkowski at 1 (recommending 
that the Commission use its authority to address anti-competitive 
conduct in circumstances in which ``a single company gains exclusive 
control of energy-related infrastructure . . . for moving domestic 
crude to a consuming market'').
    \34\ See, e.g., CFTC (Arbit) at 1 (urging the Commission to 
``incorporate an exception from its rule for commodity futures and 
options trading activity on regulated futures exchanges''); CFTC 
(Chilton) at 2; CFDR at 8 (asking that the Commission refrain from 
encroaching on the CFTC's exclusive jurisdiction over futures 
transactions); Brown-Hruska at 8-9 (``[I]t is my hope that the 
Commission will narrow the focus of the rule tightly upon 
manipulative and deceptive conduct in the wholesale petroleum 
markets [to avoid overlap with the CFTC].''); ISDA at 14 (``[T]he 
Commission should clarify that it will refer to the CFTC any 
manipulative activity that it becomes aware of that does not 
directly involve a wholesale, physical petroleum products 
transaction.''); MFA at 2 (recommending that the Commission adopt a 
safe harbor for futures markets activities); Sutherland at 2 (urging 
the Commission to reconsider its decision to reach futures markets 
activities under any Section 811 rule). But see, e.g., Pirrong at 8 
(noting that objections that ``FTC actions against manipulation will 
interfere with the [CFTC's] jurisdiction over commodity market 
manipulation . . . are moot, because Congress has decided 
otherwise''); CA AG at 3 (``EISA . . . provide[s] the FTC with the 
power to monitor for and prevent fraud and deceit in the commodity 
futures market, insofar as it affects oil and gas futures.''); CFA2 
at 19 (urging the Commission to take ``vigorous action to reign in 
the speculative bubble and return the futures markets to their 
proper role to improve the functioning of physical commodity 
markets'').
    \35\ ATAA at 4-5 (asserting that the FTC properly concluded that 
oil pipelines are subject to the proposed Rule); IPMA at 4 (``We 
agree that Commission jurisdiction should extend to pipelines.''). 
But see AOPL at 1 (urging the Commission to revise its proposed Rule 
``to clarify that it does not apply to interstate common carrier oil 
pipelines regulated by the [FERC] under the Interstate Commerce Act 
(`ICA')'').
    \36\ See, e.g., ATA at 3 (urging the Commission to ``expand the 
scope of [the proposed Rule] to include alternative and renewable 
energy markets''); IPMA at 4 (agreeing that ``manipulation of non-
petroleum based commodities such as ethanol'' that affect the price 
of gasoline should be ``subject to Commission enforcement''); NPRA 
(Drevna), Tr. at 221-22 (agreeing that the Commission should reach 
blending components that are inputs to gasoline or diesel); SIGMA 
(Columbus), Tr. at 222-23 (agreeing that mandated alternative fuels 
and components should be covered under a rule). But see MFA at 3 
(asking that the Commission exclude from the Rule's coverage ethanol 
and commodities that may be used in the process of making ethanol 
``that are the subject of futures and options trading'').
---------------------------------------------------------------------------

III. Basis for the Rule

    Section 811 of EISA provides the legal basis for any petroleum 
market manipulation rule. Section 811

[[Page 18308]]

prohibits ``any person'' from ``directly or indirectly'' using or 
employing ``any manipulative or deceptive device or contrivance''--in 
connection with the purchase or sale of crude oil, gasoline, or 
petroleum distillates at wholesale--that violates a rule or regulation 
that the Commission ``may prescribe'' ``as necessary or appropriate in 
the public interest or for the protection of United States 
citizens.''\37\
---------------------------------------------------------------------------

    \37\ 42 U.S.C. 17301; see also 73 FR at 48320.
---------------------------------------------------------------------------

    The Commission has carefully considered concerns raised by 
commenters about the propriety of a rule.\38\ Most of the commenters 
who addressed the rulemaking standard agreed generally that a Section 
811 rule would be necessary or appropriate, and that it would be in the 
public interest to combat fraud in wholesale petroleum markets.\39\ A 
few commenters, however, specifically questioned the necessity or 
appropriateness of the proposed Rule.\40\ Sutherland, for example, 
argued that the proposed Rule failed to ``balance the Congressional 
directive for regulatory oversight with the goal of allowing economic 
efficiency,'' and was ``more intrusive of legitimate business behavior 
than is necessary.''\41\ NPRA stated that the proposed Rule's reliance 
on SEC Rule 10b-5 and related legal precedent as a model would create 
confusion and potentially discourage procompetitive activity, and, 
thus, would be neither necessary nor appropriate in the public 
interest.\42\
---------------------------------------------------------------------------

    \38\ Some commenters opined on the meaning of the language ``in 
the public interest or for the protection of United States 
citizens'' in the ANPR. See, e.g., CFDR, ANPR, at 4-5 (``The public 
interest and the protection of U.S. citizens . . . are best served 
by the adoption of a clear legal standard for market manipulation 
that will allow market participants to conduct their business with a 
clear understanding of the relevant legal boundaries.''); MFA, ANPR, 
at 17 (``FTC rules that purport to overlap with CFTC exclusive 
jurisdiction would not serve the public interest.''); Flint Hills, 
ANPR, at 17-18 (stating that the statutory language--``in the public 
interest''--reflects Congress' intention that the Commission draw 
upon its long experience in articulating ``the public interest'' 
under its other statutes).
    \39\ See, e.g., ATAA at 3 (noting that the proposed Rule is 
necessary to guard against conduct that undermines the integrity of 
petroleum markets); MS AG at 2 (``The proposed Rule will benefit 
consumers significantly because market manipulation can artificially 
inflate prices of petroleum products and cause consumers to pay more 
for essential goods, such as gasoline.''); IPMA at 4 (``The proposed 
Rule does meet the rulemaking standard that it is `necessary or 
appropriate in the public interest or for the protection of United 
States[] citizens.'''); see also PMAA at 2 (stating that the 
proposed Rule fulfilled ``the Commission's intention to, `prohibit 
manipulative and deceptive conduct without discouraging pro-
competitive or otherwise desirable market practices''' (quoting 73 
FR at 48323)); ATA at 2 (supporting the proposed Rule ``as an 
additional tool to help preserve the integrity of vital energy 
markets'').
    \40\ Most commenters directed their comments to the application 
of the Rule, rather than to whether the proposed Rule met the 
rulemaking standard articulated in Section 811.
    \41\ Sutherland at 2.
    \42\ NPRA at 15-16; see also API at 1 (arguing that a rule is 
unnecessary because ``repeated FTC investigations have found no 
evidence of significant harmful or illegal conduct [in petroleum 
markets]'').
---------------------------------------------------------------------------

    As stated in the NPRM, Section 811 of EISA targets manipulative or 
deceptive conduct in wholesale petroleum markets. In enacting this 
provision, Congress specifically authorized the Commission to determine 
whether a rule would be appropriate and in the public interest. Based 
upon its experience and perspective from several decades of protecting 
consumers and analyzing competition in petroleum markets, the 
Commission believes that it is both appropriate and in the public 
interest to publish a revised proposed rule prohibiting fraudulent and 
deceptive conduct in wholesale petroleum markets that serves no 
legitimate purpose.
    To achieve these objectives, the revised proposed Rule defines, for 
market participants, the Section 811 statutory prohibition of the use 
or employment of any ``manipulative or deceptive device or 
contrivance.''\43\ Like the initially proposed Rule, the revised 
proposed Rule would prohibit conduct that injects false information 
into market transactions. However, the revised proposed Rule more 
precisely identifies the conduct prohibited, and thus achieves a more 
appropriate balance between consumer protection interests and 
compliance burdens.\44\ Consequently, the Commission believes that it 
is both appropriate and in the public interest to publish the revised 
proposed Rule.
---------------------------------------------------------------------------

    \43\ 42 U.S.C. 17301.
    \44\ Several commenters expressed concern that a lack of clarity 
about the type of conduct covered by the proposed Rule could chill 
legitimate conduct, owing to potentially significant monetary 
penalties that might be imposed for any violation. See, e.g., API at 
9-10 n.12 (``[V]iolations of a market manipulation rule would expose 
market participants to substantial monetary penalties. This 
significantly increases the risk of chilling desirable practices as 
companies seek to minimize the risk of liability.''); Muris at 2 
(arguing that the necessary generality of the proposed Rule, 
``[c]oupled with the extraordinarily high penalties . . . creates 
the risk of chilling legitimate business decisions''); NPRA at 3 
(arguing that the harsh penalties associated with a Section 811 rule 
and the uncertainty created by the proposed application of SEC 
precedent, ``would prompt corporate compliance systems that would 
impair the procompetitive and cost-efficient functioning of 
wholesale petroleum markets'').
---------------------------------------------------------------------------

IV. Discussion of the Revised Proposed Rule

A. The Revised Proposed Rule is an Anti-Fraud Rule

    The Commission stated in the NPRM that its proposed Rule was 
modeled on the SEC's broad, anti-fraud Rule 10b-5.\45\ The Commission 
further stated that it intended to rely on only relevant SEC precedent 
in applying its rule.\46\ Although some commenters supported this 
approach, others raised concerns about basing a rule on SEC Rule 10b-5. 
The revised proposed Rule retains the anti-fraud concept of SEC Rule 
10b-5, but it is further tailored to wholesale petroleum markets. The 
following discussion addresses the use of SEC Rule 10b-5 as a model, 
and provides Commission responses to commenter concerns about this 
approach. The Commission invites written comments on the revised 
proposed Rule, particularly regarding the modifications made to the 
initially proposed Rule, and responses to the questions in Section 
IV.I.
---------------------------------------------------------------------------

    \45\ 73 FR at 48322.
    \46\ 73 FR at 48322 (stating that the Commission ``[was] not 
invoking the entire body of SEC law in this rulemaking, but rather 
the anti-fraud provisions of SEC Rule 10b-5'').
---------------------------------------------------------------------------

    Many commenters expressed general support for an anti-fraud rule, 
contending that a fraud standard would provide necessary guidance to 
market participants.\47\ A few commenters specifically endorsed the 
proposed Rule as articulated in the NPRM, without modification.\48\ 
Some commenters also

[[Page 18309]]

agreed with the Commission's decision to model the proposed Rule after 
SEC Rule 10b-5.\49\ For example, SIGMA argued that a SEC Rule 10b-5 
model would ``ensure[] consumer protection while affording business 
owners a wealth of certainty with respect to their market 
practices.''\50\ A few commenters expressly embraced the Commission's 
decision to use the legal precedent under SEC Rule 10b-5 for guidance 
in interpreting a Section 811 rule.\51\
---------------------------------------------------------------------------

    \47\ See, e.g., CFDR (Mills), Tr. at 38-39 (``From my point of 
view, fraud is a good demarcation for any antimanipulation rule, 
because it provides a basis by which people can govern themselves 
and know with some understanding of what kind of conduct is going to 
violate a rule or not.''); API (Long), Tr. at 33 (stating that ``in 
general, fraud is a useful limiting concept''); PMAA (Bassman), Tr. 
at 47 (``[U]sing fraud . . . is very clear, because none of the 
people operating in this market operate without the benefit of legal 
counsel. Any legal counsel understands the concept of fraud, and 
fraud does belong here.''); ATAA at 11 (stating that the ``proposed 
rule properly contains a broad anti-fraud provision''); ABA Energy 
(McDonald), Tr. at 246 (urging the Commission to ``focus on 
deceptive conduct that hinders the operations of markets by 
misleading participants''); see also ISDA (Velie), Tr. at 40 (``[W]e 
think fraud is a good standard, as long as it's coupled with 
specific intent to manipulate a market.''); Flint Hills (Hallock), 
Tr. at 46 (``I think it's important to keep a focus, though, on the 
aim of the fraud, and the aim of the fraud that I believe that the 
agency has been looking for is fraud upon a market . . . .''); NPRA 
at 2 (``NPRA endorses the FTC's determination that implementation of 
the EISA should be accomplished through a rule against fraud and 
deception that harms the competitive functioning of wholesale 
petroleum markets and, ultimately, consumers.'').
    \48\ See, e.g., MS AG at 2 (``The proposed Rule will benefit 
consumers significantly because market manipulation can artificially 
inflate prices of petroleum products and cause consumers to pay more 
for essential goods, such as gasoline.''); PMAA at 2 (stating that 
the proposed Rule prohibits manipulative and deceptive conduct 
without chilling pro-competitive behavior); CA AG at 2 (expressing 
support for the FTC's proposed Rule).
    \49\ See, e.g., SIGMA at 2 (expressing support for the 
Commission's decision to base its proposed Rule on Rule 10b-5); ATAA 
at 11 (``[ATAA] supports the proposed rule's use of SEC Rule 10b-5 
as the model for a rule designed to proscribe market 
manipulation.''); see also PMAA at 2 (supporting the Commission's 
decision not to ``slavishly follow[]'' the Rule 10b-5 model); Boxer 
at 1 (``I think it's [great] to have Rule 10b-5 essentially extended 
to the oil traded on the [NYMEX] and ICE exchanges . . . .'').
    \50\ SIGMA at 2.
    \51\ See, e.g., CFDR at 2 (``The Commission . . . rightly looks 
to securities law precedents for guidance in shaping the legal 
standards and jurisprudence under EISA.''); ATAA at 11 (``[Rule 10b-
5] provides the FTC with a well-developed framework to follow.'').
---------------------------------------------------------------------------

    Other commenters expressed concern about the Commission's reliance 
on SEC Rule 10b-5 language and its legal precedent.\52\ Generally, 
these commenters argued that the legal precedent developed under SEC 
Rule 10b-5 cannot be divorced from the language of Rule 10b-5 
itself.\53\ They contended that securities markets are characterized by 
legal relationships of trust and an emphasis on full disclosure which 
do not exist in wholesale petroleum markets.\54\ These commenters 
argued that relying upon SEC Rule 10b-5 legal precedent therefore would 
create confusion and uncertainty as to what conduct would violate the 
proposed Rule.\55\ Some commenters asserted that, as a result, the 
proposed Rule potentially would chill legitimate business conduct, and 
that its uncertain scope would make it difficult for companies to 
create effective programs for compliance with the Rule.\56\
---------------------------------------------------------------------------

    \52\ As a threshold matter, some of these commenters disagreed 
with the Commission's tentative determination in the NPRM that the 
language of Section 811 indicated that the FTC should model a 
Section 811 rule after Rule 10b-5, arguing that if this had truly 
been the intent of Congress, it would have included an explicit 
directive in the statute similar to the directive in the FERC's 
anti-manipulation authority. See 15 U.S.C. 717c-1; 16 U.S.C. 824v; 
FERC, Prohibition of Energy Market Manipulation, 71 FR 4244, 4246 
(Jan. 26, 2006). See, e.g., NPRA at 15-16 (stating that the language 
of Section 811 does not require that the Commission model an FTC 
rule after SEC Rule 10b-5); API at 12 (``The language of Section 811 
thus authorizes the Commission to take a different approach than the 
[FERC] . . . .''); ISDA at 6 (stating that, unlike the FERC's market 
manipulation statute, Section 811 does not contain express language 
directing it to rely on securities precedent).
    \53\ See, e.g., API at 15 (``The Rule 10b-5 regulatory regime is 
deeply intertwined with the disclosure obligations imposed by 
Section 10(b) and other provisions of the SEA, the scope of which, 
in turn, are highly dependent on the fiduciary duties and 
obligations that exist between various market participants.''); see 
also ISDA at 7 (stating that disclosure requirements are 
``[i]nterwoven and inextricably part of securities regulation'').
    \54\ See, e.g., NPRA at 4, 7 (arguing that due to the absence of 
fiduciary and other duties and disclosure obligations in wholesale 
petroleum markets, it would be ``bad public policy to apply [Rule 
10b-5] to purchasers or sellers in wholesale petroleum markets''); 
ISDA at 7 (stating that in the absence of legal trust relationships, 
it is unclear if Rule 10b-5 principles are applicable to wholesale 
petroleum markets); Pirrong Tr. at 36 (stating that a Rule 10b-5 
case raises ``issues related to fiduciary duty that are inherent in 
the securities laws, but which are not really appropriate or really 
that relevant in a commodities context''); API at 25 (arguing that 
unlike wholesale petroleum markets, the securities marketplace is a 
regulated industry ``governed by detailed disclosure obligations 
designed to protect unsophisticated investors''); Plains at 3 
(stating that in crude oil markets, unlike securities markets, 
``there is no presumption that one market participant owes any 
duties to its counterparties that would require disclosure of any 
information'').
    \55\ See, e.g., API at 9 (applying Rule 10b-5 precedent 
``without any modification . . . would create confusion and chill 
pro-competitive behavior''); NPRA at 16 (``[A] blanket transfer of 
the language and precedent of Rule 10b-5 from securities markets to 
wholesale petroleum markets would likely create significant 
confusion and discourage procompetitive activity.'').
    \56\ See, e.g., Flint Hills at 5 (stating that the proposed Rule 
does not ``provide practical, clear, articulate guidance to its 
staff, traders and others dealing on [its] behalf'' as to prohibited 
conduct); API at 8 (stating that the benefits of an FTC rule are 
outweighed by ``potentially significant compliance costs'' and the 
risk of ``interfer[ing] with the efficient functioning of petroleum 
markets and deter[ring] procompetitive, welfare-enhancing 
behavior''); NPRA at 3 (``[A]s drafted, the language of the proposed 
rule instead would prompt corporate compliance systems that would 
impair the procompetitive and cost-efficient functioning of 
wholesale petroleum markets.''); see also ISDA at 9 (``Under the 
proposed Rule, market participants are likely to be concerned that 
their competitive trading strategies or inadvertent miscalculations 
may later be misconstrued by regulators . . . .'').
---------------------------------------------------------------------------

    Many commenters offered modifications to the proposed Rule intended 
to adapt it to wholesale petroleum markets.\57\ Commenters who urged 
the Commission to diverge from SEC Rule 10b-5 legal precedent suggested 
revising the proposed Rule to include express language requiring both a 
showing of specific intent--to satisfy the scienter requirement\58\--
and a showing of price effects.\59\ Some commenters recommended that 
the Commission draw instead upon legal precedent construing the 
CEA.\60\ Others argued that an anti-fraud manipulation rule would not 
go far enough, or that it should reach different types of conduct.\61\ 
One commenter, for example, suggested that the rule should target the 
exercise of market power intended to benefit a derivatives

[[Page 18310]]

position.\62\ Other commenters specifically urged the Commission to 
prohibit refiners and suppliers from refusing to sell unblended 
gasoline to distributors.\63\
---------------------------------------------------------------------------

    \57\ API and NPRA suggested that the Commission retain the 
elements of a violation but not the language of the proposed Rule, 
or at least modify the language of the proposed Rule to clarify its 
application. API at 15-16; NPRA at 16-17 (stating that the elements 
of SEC Rule 10b-5 detached from securities precedent and with 
modifications are a ``better starting point'' for a rule rather than 
the specific language of Rule 10b-5); see also API at 12 (``The 
language of Section 811 thus authorizes the Commission . . . to 
modify the Rule 10b-5 regime in light of its extensive experience 
with the petroleum industry.''); ISDA at 6 (stating that, unlike the 
FERC's market manipulation statute, Section 811 does not contain 
express language directing it to rely on securities precedent).
    \58\ Some commenters recommended that the Commission adopt the 
CEA's specific intent standard. See, e.g., ISDA at 10-11 (stating 
that the CEA's intent requirement is better suited for commodities 
markets than the FTC's proposed scienter requirement); API at 21-22 
(advocating for a specific intent standard similar to that of the 
CEA); see also NPRA at 32 (stating that the proposed Rule should 
require specific intent in order to harmonize the proposed Rule with 
the CFTC's market manipulation authority); CFDR at 7 (stating that a 
specific intent standard ``would substantially help to harmonize the 
legal standard between the Commission's rule and the CFTC's 
interpretation of the CEA'').
    \59\ See, e.g., ISDA at 3-4 (asking that the Commission require 
proof of price effects); Plains at 3 (urging the Commission to make 
clear that only conduct that has a ``manipulative effect on the 
relevant market'' will be actionable); API at 34 (recommending that 
the Commission require ``proof that a party's deceptive or 
fraudulent conduct caused market conditions to deviate materially 
from the conditions that would have existed but for that conduct'').
    \60\ A few commenters asserted that the standards applied to 
commodities markets, including futures commodities markets, under 
the CEA are more applicable to petroleum markets than is securities 
legal precedent. See, e.g., ISDA at 11 (stating that CEA ``precedent 
is much more analogous to the markets the EISA seeks to protect''); 
API at 15 (urging the Commission to ``draw on relevant commodities 
law precedents in addition to elements of Rule 10b-5''); see also 
Brown-Hruska at 4 (``[T]he mission of the Commission is more 
analogous to that of the commodities market regulator, the CFTC, 
which has the responsibility to ensure that the prices derived from 
and used by futures markets are fair and free from fraud and 
manipulation.''). See generally Pirrong at 5 (recommending that the 
Commission follow a modified CEA price manipulation model). But see 
NPRA (DeSanti), Tr. at 251 (``I want to be explicit that the NPRA 
does not support using [a] CEA model here.'').
    \61\ See, e.g., Navajo Nation (Piccone), Tr. at 37-38 (arguing 
that a rule should address nonfraudulent, manipulative acts such as 
a refiner denying producers access to other markets); Navajo Nation 
at 3 (seeking confirmation that an FTC rule ``will be applied to 
prohibit all manipulative conduct that artificially distorts 
wholesale petroleum markets or undermines incentives to find and 
develop reserves of domestic crude oil''); see also CFA (Cooper), 
Tr. at 160 (stating that fraud is too narrow a focus and the 
proposed Rule also should cover market power issues); CFA2 at 8 
(urging the FTC to ``identify and attack the broad range of 
practices and structural conditions that can and have been moving 
prices in the markets'').
    \62\ Pirrong at 2-5 & n.2 (defining ``derivatives'' to include 
``exchange-traded futures contracts, and options on futures, and 
forward and options contracts traded in the over-the-counter . . . 
market'').
    \63\ MPA at 2 & n.1 (noting that MPA's members share the 
experiences described by IPMA and TOMA in their ANPR comments and 
IPMA in its NPRM comment, and that distributors and retailers can 
often obtain more competitive prices if they buy unblended gas 
separately from ethanol, which they then add to the gasoline before 
selling it at retail); see also NPCA at 1; IPMA at 2-3. MPA also 
recommended that the Commission reach the aforementioned conduct, 
which has ``an adverse effect on competition'' under an FTC rule. 
MPA at 2. The Commission does not intend to focus on anti-
competitive conduct in its application of the final Rule, which 
remains the province of antitrust law. The approach is consistent 
with Section 815 of EISA. See 42 U.S.C. 17305(b); see also ABA 
Energy (McDonald), Tr. at 244 (arguing that the final Rule should 
not reach conduct that is already covered by the antitrust laws, 
such as the unilateral exercise of market power).
---------------------------------------------------------------------------

    Based on the rulemaking record developed thus far, as well as its 
extensive experience with the petroleum industry, the Commission 
believes that modifying the proscriptions of the initially proposed 
Rule will better focus it on wholesale petroleum markets, which differ 
significantly from securities markets. As explained in the ANPR and the 
NPRM, the conduct prohibition in Section 811 is identical to language 
found in SEA Section 10(b), which prohibits the use of any 
``manipulative or deceptive device or contrivance.''\64\ The Commission 
believes that this language directs the agency to be guided by SEC Rule 
10b-5,\65\ a broad anti-fraud rule.\66\ However, the inclusion of the 
language ``as necessary or appropriate'' in Section 811 further directs 
the Commission to use its expertise to tailor the rule in a manner 
appropriate for wholesale petroleum markets.\67\
---------------------------------------------------------------------------

    \64\ See 73 FR at 25619; 73 FR at 48322. The anti-manipulation 
authority granted to the FERC also contains the identical conduct 
prohibition, and the statute granting that authority explicitly 
directed the FERC to rely upon SEA Section 10(b) in defining the 
terms ``manipulative or deceptive device or contrivance.'' See 15 
U.S.C. 717c-1; 16 U.S.C. 824v.
    \65\ The language of Section 811 reflects congressional intent 
that the Commission look to SEC Rule 10b-5 in crafting a market 
manipulation rule. See Evans v. United States, 504 U.S. 255, 260 n.3 
(```[I]f a word is obviously transplanted from another legal source, 
whether the common law or legislation, it brings the old soil with 
it.''') (quoting Felix Frankfurter, Some Reflections on the Reading 
of Statutes, 47 Colum. L. Rev. 527, 537 (1947)); Morissette v. U.S., 
342 U.S. 246, 263 (1952) (noting where Congress borrows terms of art 
it ``presumably knows and adopts the cluster of ideas that were 
attached to each borrowed word''); see also National Treasury 
Employees Union, et al. v. Chertoff, 452 F.3d 839, 858 (D.C. Cir. 
2006) (stating that ``there is a presumption that Congress uses the 
same term consistently in different statutes'').
    \66\ Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 
404 U.S. 6, 12 (1971) (stating that preserving the integrity of 
securities markets is one of the purposes of Rule 10b-5); U.S. v. 
Russo, 74 F.3d 1383, 1391 (2d Cir. 1996) (``[F]rauds which 
`mislead[] the general public as to the market value of securities' 
and `affect the integrity of the securities markets' . . . fall well 
within [Rule 10b-5].'') (citations omitted); In re Ames Dep't 
Stores, Inc. Stock Litig., 991 F.2d 953, 966 (2d Cir. 1993) (stating 
that frauds affecting the integrity of securities markets fall under 
Rule 10b-5).
    \67\ To do otherwise would violate a canon of statutory 
construction. See TRW, Inc. v. Andrews, 534 U.S. 19, 31 (2001) (``It 
is `a cardinal principle of statutory construction' that `a statute 
ought, upon the whole, to be so construed that, if it can be 
prevented, no clause, sentence, or word shall be superfluous, void, 
or insignificant.''') (citations omitted).
---------------------------------------------------------------------------

    The Commission has modified the initially proposed Rule after 
considering comments provided during the public comment period and at 
the public workshop. The modifications should clarify the requirements 
imposed by the revised proposed Rule for market participants. The 
Commission recognizes that, in the absence of a more extensive 
regulatory scheme, the omissions provision in Section 317.3 of the 
initially proposed Rule could discourage legitimate business conduct in 
wholesale petroleum markets that benefits consumers. Therefore, the 
Commission has consolidated the three subsections of Section 317.3 into 
two subsections, and has added language both to sharpen its focus on 
fraudulent and deceptive conduct and to reduce potential adverse 
effects on legitimate business conduct. Specifically, the Commission 
has added an explicit scienter standard for each subsection of Section 
317.3, and has added language to the omissions provision now contained 
in Section 317.3(b) to ensure that it prohibits only the omission of 
material facts that is both misleading under the circumstances and 
distorts or tends to distort market conditions for the covered 
products.
    The Commission has retained the general anti-fraud prohibition 
contained in Section 317.3(c) of the initially proposed Rule in revised 
proposed Section 317.3(a). Thus, revised proposed Section 317.3(a) 
would prohibit any person from knowingly engaging in conduct--including 
making any untrue statement of material fact--that operates or would 
operate as a fraud or deceit on any person. Revised proposed Section 
317.3(a) would not prohibit omissions of material facts. Such omissions 
would instead be covered by revised proposed Section 317.3(b), which 
would prohibit any person from intentionally failing to state a 
material fact which both makes a given statement misleading under the 
circumstances and distorts or tends to distort market conditions for a 
covered product. These modifications are intended to eliminate 
redundancy and more precisely define the conduct that revised proposed 
Rule Section 317.3 would prohibit; that is, fraudulent or deceptive 
conduct that injects false information into wholesale petroleum market 
transactions.
    The Commission believes that this framework best reflects both 
congressional intent and the nature of the markets covered by the 
revised proposed Rule. The Commission recognizes, however, that this 
approach may be too narrow to prevent all manipulative conduct. The 
Commission therefore does not foreclose the possibility of extending 
the scope of any final rule in the future if new information or 
enforcement experience warrant such modifications.

B. Section 317.1: Scope

    Section 813 provides the Commission with the same jurisdiction and 
power under Subtitle B of EISA as does the FTC Act, 15 U.S.C. 41 et 
seq.\68\ With certain exceptions, the FTC Act provides the agency with 
jurisdiction over nearly every economic sector. Because EISA does not 
expand or contract coverage under the FTC Act, any ``person'' currently 
subject to the Commission's jurisdiction--that is, any individual, 
group, unincorporated association, limited or general partnership, 
corporation, or other business entity--would be covered by the revised 
proposed Rule. Conversely, any ``person'' not subject to Commission 
jurisdiction under the FTC Act would also not be subject to Commission 
jurisdiction under the revised proposed Rule.
---------------------------------------------------------------------------

    \68\ Section 813(a) of EISA provides that Subtitle B shall be 
enforced by the FTC ``in the same manner, by the same means, and 
with the same jurisdiction as though all applicable terms of the 
[FTC] Act (15 U.S.C. 41 et seq.) were incorporated into and made a 
part of [Subtitle B].'' 42 U.S.C. 17303 (emphasis added).
---------------------------------------------------------------------------

    In response to the NPRM, some commenters asked the Commission to 
clarify the jurisdictional scope of any final rule. With respect to 
pipelines, one commenter, AOPL, asserted that ``interstate common 
carrier oil pipelines regulated by the FERC under the ICA are exempt 
from Commission jurisdiction'' and should be excluded from the coverage 
of any FTC rule.\69\ AOPL

[[Page 18311]]

further suggested that the Commission provide a ``safe harbor 
protecting oil pipelines against any culpability under the rule so long 
as they are acting in accordance with the ICA and FERC regulation of