Which Federal Agency Can Police Futures Markets?

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Federal appeals court holds that CFTC has exclusive regulatory authority over energy futures markets.

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In a recent decision, the United States Court of Appeals for the District of Columbia resolved a “turf war” between two federal agencies claiming regulatory authority over futures markets for natural gas.

In Hunter v. Federal Energy Regulatory Commission, the court examined whether the Federal Energy Regulatory Commission (FERC) infringed upon the authority of the Commodity Futures Trading Commission (CFTC) when it fined a trader for manipulating the price of natural gas futures contracts.

The petitioner, Brian Hunter, placed a number of trades on the New York Mercantile Exchange, which is regulated by the CFTC.  Hunter sold large volumes of natural gas futures contracts in 2006, while “position[ing] his [other] assets in the natural gas market to capitalize on a price decrease.” He ultimately benefited from the sale due to his manipulation of the price of natural gas futures contracts.  Noticing the suspicious nature of these sales, the CFTC and the FERC both filed enforcement actions against Hunter.

Claiming that Hunter’s manipulation of the market violated section 4A of the Natural Gas Act, FERC imposed a $30 million fine.  Hunter appealed the administrative decision and, joined by the CFTC, argued that the CFTC has exclusive jurisdiction to pursue enforcement actions for manipulating futures markets, and that FERC therefore overstepped its regulatory authority.

The D.C. Circuit agreed with Hunter after examining the statutes granting authority to both agencies. The court noted that when Congress amended the Commodity Exchange Act (CEA) in 1974, it intended “to give the CFTC exclusive jurisdiction over transactions conducted on futures markets.” It then considered whether the Energy Policy Act of 2005, which provides FERC with authority to regulate manipulation in energy markets, affected the CFTC’s authority.  The court concluded the Energy Policy Act did not “limit or affect the exclusive jurisdiction of the [CFTC]” by implication.

Noting that repeals by implication are generally disfavored unless clear and manifest in subsequent statutes, the court also examined whether the Energy Policy Act – which Congress passed approximately thirty years after it amended the CEA – might have established “complementary jurisdiction” that would allow two agencies to regulate an energy futures market.  The court found it did not.  The Energy Policy Act never addressed the question of whether FERC “may intrude upon the CFTC’s exclusive jurisdiction.”

Finally, the court turned to FERC’s argument that the Energy Policy Act’s language preserving exclusive jurisdiction for the CFTC applies only to information-sharing arrangements – not regulatory power – and that therefore FERC has regulatory authority over energy futures markets. In rejecting this argument, the court concluded that the Energy Policy Act’s language on this point is ambiguous, and therefore insufficient to constitute an implied repeal.

Granting Hunter’s petition for review, the court also noted that undercutting the CFTC’s exclusive jurisdiction over commodity futures contracts would “defeat Congress’s very clear goal of centralizing oversight of futures contracts.”