Engineering News

FTC Proposes Rule On Petroleum Market Manipulation
Wednesday, August 13, 2008

Under pressure from federal lawmakers concerned about high energy prices, the U.S. Federal Trade Commission Wednesday proposed a rule prohibiting petroleum market manipulation, giving the agency authority to levy fines of up to $1 million per violation a day.

The proposed rule - which would cover both spot and futures markets - is designed to increase oversight of the crude, natural gas, gasoline and other product markets as directed by the U.S. Congress late last year.

As oil prices surged to nearly $150 a barrel in July, many lawmakers increased pressure on the the FTC to promulgate the anti-manipulation rule, feeling existing oversight was too weak and laxly regulated. Lawmakers are concerned that excessive speculation - and possible manipulation - in the oil markets are helping drive prices to record levels, and are seeking ways to enforce tougher market oversight. Congress is considering anti-speculation legislation designed to rein in speculative trading deemed to be distorting the market.

Given that the proposed rule covers the futures market - also the domain of the Commodity Futures Trading Commission - it may step up a growing regulator turf battle between agencies and spur activity by the CFTC.

"The Federal Trade Commission is committed to exercising its authority to determine whether crude oil, gasoline, or petroleum distillates price increases at wholesale are a result of illegal market manipulation," Chairman William Kovacic said in a statement.

"The proposed rule announced today brings us one step closer to defining, identifying, and stopping fraudulent and deceptive conduct in wholesale petroleum markets that may contribute to higher gasoline prices."

The proposed rule focuses on fraudulent or deceptive conduct that threatens the integrity of wholesale petroleum markets, the FTC said.

If the agency enacts the rule as it is currently written, it could subject violators with penalties of up to $1 million per violation per day. The FTC said the final rules should be published by the end of the year.

The CFTC didn't immediately return calls for comment.

Congress late last year gave the FTC expanded powers under a law that made it illegal to use manipulation or deception in connection with the purchase or sale of crude oil, gasoline or petroleum distillates. The FTC got the power to enforce the law, including writing rules to define manipulative practices.

Since Congress has stepped up its pressure on the CFTC, the agency has announced a broad investigation into the crude futures market. It has made several changes to its oversight system, including increasing the data flow from foreign exchanges and swaps markets, and in July unveiled a manipulation probe into a small Dutch trading firm.

Energy experts say that financial participants in the market are more concerned about an FTC investigation into speculation and market manipulation than a CFTC probe, because the burden of proof is much lighter under case law established by the FTC.

The CFTC is already fighting a similar turf battle with the Federal Energy Regulatory Commission over oversight of the natural gas markets in a market manipulation case brought against failed billion-dollar hedge fund Amaranth Advisors.

Source: Dow Jones Newswires

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