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About Michael

Michael Brooks focuses his practice in the areas of energy, commodities and derivatives law. He represents energy companies and commodity trading companies in a wide variety of commercial, regulatory, compliance and enforcement matters and routinely advises clients regarding federal rules and regulations governing the trading, ownership, transportation and transmission of energy commodities.  His counsel includes advising clients regarding emerging technologies and related privacy, cybersecurity, commercial and regulatory issues.

In addition to actively representing clients in investigations and regulatory matters involving the Federal Energy Regulatory Commission (FERC), the Commodity Futures Trading Commission (CFTC) and designated contract markets such as CME Group and ICE Futures U.S., Michael conducts internal compliance reviews and trainings, works with clients to develop effective compliance programs and collaborates with commercial teams to structure large commodity transactions and acquisitions to comply with FERC and CFTC regulations. He also advises clients regarding compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the U.S. Federal Trade Commission’s (FTC) petroleum market manipulation regulations.                              

He has a great business and legal mind, he helps clients manage risk, he communicates objectively, and his updates are objective and well thought through.
Chambers USA, 2018

Experience

Recent Notable Matters

Energy companies — representing clients in non-public investigations conducted by FERC surrounding allegations of manipulation of natural gas and electricity markets

Large Commodity Trading Companies — representing clients in non-public investigations conducted by the CFTC involving energy and agricultural commodities and metals

Non-U.S. companies — representing clients in extraterritorial investigations conducted by the CFTC, including raising jurisdictional defenses and operating pursuant to protocols in keeping with international memoranda of understanding

Participants in U.S. futures markets — representing and/or advising clients in non-public exchange inquiries from CME Group and ICE Futures U.S. related to allegations of fraud, fictitious trades, wash and accommodation trades, spoofing, non-bona fide exchanges for related position (EFRPs), block trades, and position limit violations

ISO/RTO market participants — advising clients regarding transaction-specific compliance and/or representing clients in non-public investigations related to trading in the various ISOs/RTOs, including PJM Interconnection, ISO New England, the New York ISO, the Midcontinent Independent System Operator (MISO), the Southwest Power Pool (SPP), the California ISO (CAISO) and the Electric Reliability Council of Texas (ERCOT)

Small businesses to large and multinational companies — conducting investigations and reviews of compliance practices and advising clients regarding implementation of effective compliance programs, conducting compliance trainings, and providing transactional advice regarding regulatory compliance

LNG importers/exporters — advising regarding a broad range of issues arising from the importation, exportation, transportation and storage of LNG

Publications and Speeches

“The Unsinkable:  A Look at Blockchain’s Potential and Pitfalls,” Pipeline & Gas Journal, June 2018.

“Another Year of Enforcement at FERC and CFTC,” Law360, January 2017.

“Court Clarifies Application of FERC Anti-Manipulation Rule to Demand Response Service Providers,” Electric Light & Power, July 19, 2016.

“Handling Change Management,“ Midstream Business, February 12, 2016.

“Operating a Utility in Today’s Enforcement Climate: FERC and Beyond,“ Utilities & Energy Compliance & Ethics Conference, February 24, 2015.

Credentials

Education

George Mason University School of Law,
J.D.
2005
magna cum laude
College of William & Mary,
B.A.
1998

Bar Admissions

District of Columbia
Virginia

Affiliations

Energy Bar Association

News

News

Handling Change Management

February 12, 2016
Midstream Business

Did Kraft manipulate futures?

October 21, 2015
Futures

CQ Today

May 13, 2011
Roll Call

Insights

Insights

The CFTC and Virtual Currencies: Amidst All the Hype, Don’t Forget “Commodity” is still a Defined Term

April 13, 2018

The Internet recently erupted with news reports and law firm legal alerts broadcasting the endorsement by a federal court of the Commodity Futures Trading Commission’s (CFTC) position that virtual currencies (a/k/a cryptocurrencies) are commodities subject to...

FERC Approves Settlement of Alleged Market Manipulation Suit

On April 10, 2018, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) approved a stipulation and consent agreement (the “Settlement Agreement”) between FERC’s Office of Enforcement (“Enforcement”) and ETRACOM LLC and Michael...

Court Provides Further Clarity Regarding Scope of FERC’s Enforcement Authority

On March 30, 2018, the U.S. District Court for the Southern District of Ohio issued an opinion granting in part and denying in part motions to dismiss the Federal Energy Regulatory Commission’s (“FERC”) action seeking to enforce its assessment of civil penalties against Coaltrain...

U.S. Futures Exchanges Disciplinary Actions Alert: March 2018

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a...

U.S. Futures Exchanges Disciplinary Actions Alert: February 2018

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

FERC Orders Primary Frequency Response Without Compensation

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) revised its regulations to require all newly interconnecting generation facilities to install, maintain, and operate equipment capable of providing primary frequency response as a condition of interconnection...

FERC Eases Barriers for Electric Storage Resources to Participate in Wholesale Markets

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) adopted a final rule (“Order No. 841”) [1] that facilitates the direct participation of electric storage resources in centralized markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”)...

U.S. Futures Exchanges Disciplinary Actions Alert: January 2018

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities...

U.S. Futures Exchanges Disciplinary Actions Alert: December 2017

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities...

U.S. Futures Exchanges Disciplinary Actions Report - November 2017

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

U.S. Futures Exchanges Disciplinary Actions Report - October 2017

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

CFTC Annual Enforcement Update

On November 22, 2017, the Commodity Futures Trading Commission (“CFTC”) released its annual enforcement report for fiscal year 2017. As in previous years, this year’s report highlights the agency’s continued commitment to enforcement and aggressive pursuit of those viewed as engaging in conduct that undermines the integrity of...

FERC Annual Enforcement Update

FERC Annual Enforcement Update On November 16, 2017, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) released the Office of Enforcement’s (“OE”) annual report on enforcement activities (“ Annual Report ”) for fiscal year...

Barclays Market Manipulation Case Settles for $105 Million, What We Learned and What’s Next?

After more than four years of litigation in federal district court, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) yesterday issued an order approving a $105 million settlement...

U.S. Futures Exchanges Disciplinary Actions Report - September 2017

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

Statute of Limitations Bars FERC Penalty in Preeminent Market Manipulation Case

On Friday, the U.S. District Court for the Eastern District of California handed the Federal Energy Regulatory Commission (“FERC” or “Commission”) a significant defeat by concluding that FERC’s...

The CFTC Wants You To Turn Yourself In

On September 25, 2017, James McDonald, Director of the Division of Enforcement (“Division”) at the Commodity Futures Trading Commission (“CFTC” or “Commission”) gave a speech at New York University in which he discussed the mission of the Division of...

U.S. Futures Exchanges Disciplinary Actions Report - August 2017

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular...

New Commission Approves City Power Manipulation Settlement

Yesterday, the Federal Energy Regulatory Commission (FERC) issued an order approving a settlement agreement between FERC’s Office of Enforcement and City Power Marketing, LLC, and its owner, K. Stephen Tsingas (together, City Power). The order resolves...

U.S. Futures Exchanges Disciplinary Actions Report - July 2017

NYMEX NYMEX 15-0305-BC Position Limits Violation of Rule 562 – Position Limit Violations On August 9, 2016, a Probable Cause Committee (“PCC”) panel charged a non-member entity with violating NYMEX Rule 562, based on allegations that on November 23, 2015, the non-member entity held a long position of 1,225 December 2015 Natural Gas Futures contracts, which was 22.5% above the standard monthly position limit that was in effect. On November 23, 2016, the Business Conduct Committee (“BCC”) entered an order finding that the non-member entity failed to answer the charge and thus was deemed to have...

CFTC Fines and Imposes Permanent Ban on Trader Accused of Spoofing

On July 26, 2017, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an order approving a settlement resolving allegations that Simon Posen of New York violated the CFTC’s prohibition on spoofing by entering bids or offers with “the intent to cancel the bid or offer before execution.” [1] Posen’s transactions occurred in gold, silver, and copper futures contracts (on the Commodity Exchange, Inc.) and crude oil futures contracts (on the New York Mercantile Exchange). Mr. Posen was not, at the time, employed by any corporate entity. According to the order, Mr. Posen engaged in...

U.S. Futures Exchanges Disciplinary Actions Report - June 2017

NYMEX NYMEX 16-0498-BC Position Limit Violation of Rule 562 – Position Limit Violations Pursuant to a settlement offer, a Business Conduct Committee panel (“BCC Panel”) found that on July 27, 2016, a non-member entity held a futures equivalent long position of 1,159.25 contracts in August 2016 Henry Hub Natural Gas Look-Alike Last Day Financial Futures, which was 159.25 contracts, or 15.925%, beyond the standard expiration month limit. As a result, the non-member entity may have violated Rule 562. $50,000 fine. NYMEX 16-0600-BC Misc. Violation of Rule 432 – General Offenses, Rule 576 –...

FERC Technical Conference: Developments in Natural Gas Index Liquidity and Transparency

On Thursday, June 29, 2017, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) held a technical conference on the liquidity and transparency of natural gas price indices. The conference consisted of three discussion panels with panelists from various price reporting agencies (“PRAs”), trade associations, academia, energy companies, and other stakeholders. [1] There was general consensus among the panelists on a number of issues including general confidence in the indices, the importance of encouraging more price reporting, the need for a stronger safe harbor for price...

U.S. Futures Exchanges Disciplinary Actions Report - May 2017

NYMEX NYMEX 16-0372-BC Misc. Violation of Rule 432.Q, 432.W – General Offenses Pursuant to a settlement offer, a panel found that from July 2015 through March 2016, a non-member trader was concomitantly operating market-making and market-taking automated trading systems during the pre-opening period that entered and cancelled a number of E-mini Crude Oil and Natural Gas futures contracts orders. The market-taking strategy should not have operated in the pre-opening period and the orders it generated were not intended to be entered. Due to the non-member trader’s inability to properly...

U.S. Supreme Court: Disgorgement Subject to Five-Year Statute of Limitations

The United States Supreme Court this week unanimously held that the five-year statute of limitations established in 28 U.S.C. §2462 applies to disgorgement in Securities and Exchange Commission (SEC) enforcement proceedings. The Court in Charles Kokesh v. Securities and Exchange Commission concluded that the SEC’s use of disgorgement amounts to a penalty and thus is subject to the five year statute of limitations. [1] The decision in Kokesh represents a further practical limitation on the SEC’s remedial power and could have implications for other agency actions, including the Federal Energy...

U.S. Futures Exchanges Disciplinary Actions Report - April 2017

For the first time since we began the monthly Disciplinary Actions Report there were no disciplinary notices on the exchanges we monitor. Of course, there continue to be pending, non-public matters and more notices to come.

U.S. Futures Exchanges Disciplinary Actions Report - March 2017

NYMEX NYMEX 15-0200-BC-6 EFRP Violation of Rules 538 – Exchange for Related Positions and 538.C – Related Position. A non-member entity was found to have entered into an EFRP transaction on December 1, 2014 that was in violation of Exchange Rule 538.C. No evidence was found that the non-member entity, as the seller of a futures contract, purchased a corresponding swap or other related position, as required by Exchange Rule 538.C. Nevertheless, it was found that the EFRP transaction that the non-member entity entered into was non-bona fide, since it did not involve the requisite transfer of...

For Those Keeping Tally, Another Win for Defendants’ Rights: Exploring De Novo Review and Burdens of Proof

On March 30, 2017, the U.S. District Court for the Eastern District of California issued an order denying, without prejudice, the Federal Energy Regulatory Commission’s (“FERC” or the “Commission”) Motion to Affirm Civil Penalties against Barclays Bank PLC and four individuals (“Defendants”). [1] As an initial matter, the court agreed with every other federal court that has opined on the issue of whether defendants are entitled to conduct discovery under the Federal Rules of Civil Procedure. [2] Notably, though, the court went further than any other court in rejecting arguments raised by FERC...

U.S. Futures Exchanges Disciplinary Actions Report - February 2017

NYMEX NYMEX 16-0600 Misc . Rules 413 – Summary Access Denial Actions (in part) and 413.A – Authority to Deny Access. On January 5, 2017, CME Group’s Market Regulation Department summarily denied a member’s direct and indirect access to the CME Globex electronic trading platform for purposes of trading or entering Trading at Settlement (“TAS”) orders in any product. The summary access denial prohibited the member, or anyone on behalf of the member, from trading TAS, placing TAS orders, and controlling or directing TAS trading for any person, entity, or account in any CME Group exchange product...

Another Win for Respondents’ Rights: District Court Opines on the Scope of De Novo Review

On March 8, 2017, the U.S. District Court for the Eastern District of California issued an order affirming that ETRACOM LLC and its owner (the “Respondents”) are entitled to a full trial on the merits and discovery rights in an action brought by the Federal Energy Regulatory Commission (“FERC” or the “Commission”) seeking to enforce an order assessing civil penalties against the Respondents for alleged market manipulation in the California energy market. The primary issue at stake was the meaning of the Federal Power Act’s (“FPA”) reference to “ de novo review” in a civil action brought by...

U.S. Futures Exchanges Disciplinary Actions Report - January 2017

NYMEX NYMEX 15-0087-BC-7 Misc. Violation of Rule 432 – General Offenses (in part) In August a non-member firm was alleged to have failed to respond to Exchange staff requests for information related to an investigation. Accordingly, the Business Conduct Committee and Hearing Panel Chair found that the firm failed to answer the charge, admitted the charge, and waived its right to a hearing. In the penalty hearing, the firm was found to have committed the violation. $50,000 penalty, ten year suspension. NYMEX 16-0600 Misc. Violation of Rule 413 – Summary Access Denial Actions (in part) As part...

U.S. Futures Exchanges Disciplinary Actions Report - December 2016

NYMEX NYMEX 16-0530-BC Position Limits Violation of Rule 562 – Position Limit Violations. At the close of business on a single day in September 2016, a member firm held a short position which was 38.4% over the standard expiration month limit for October 2016 Henry Hub Natural Gas Futures contracts. Pursuant to a settlement offer, the member firm neither admitted nor denied the violation. $40,000 penalty. ICE 2015-114 Block Trades; Misc. Violation of Exchange Rule 4.01 - Duty to Supervise; Rule 4.02(c) – Trade Practice Violations; Rule 4.02(d) – Trade Practice Violations; Rule 4.04 – Conduct...

U.S. Futures Exchanges Disciplinary Actions Report - November 2016

COMEX COMEX 14-0050-BC Disruptive Trading Violation of Rule 575.A and Rule 575.D – Disruptive Practices Prohibited. Between November 2014 and March 2015, a member trader, with no intent to trade, entered or layered orders in futures contracts in order to motivate other market participants to trade opposite the member’s smaller resting orders, which the member would cancel within moments after receiving a fill on those smaller orders. During this same period, the member created alternating buy-side and sell-side market imbalances by entering orders on one side of the market and smaller orders...

FERC and CFTC Annual Enforcement Update

The Federal Energy Regulatory Commission (“FERC”) and the U.S. Commodity Futures Trading Commission (“CFTC”) recently released their annual reports on enforcement activities for fiscal year 2016 (October 2015 through September 2016). In addition, FERC enforcement staff released two white papers regarding the bounds of FERC’s prohibition on market manipulation and the features of an effective compliance program: (1) FERC Staff White Paper on Anti-Market Manipulation Enforcement Efforts Ten Years after EPAct 2005 (the “Anti-Manipulation White Paper”); and (2) FERC Staff White Paper on Effective...

U.S. Futures Exchanges Disciplinary Actions Report - October 2016

NYMEX NYMEX 13-9490-BC-1 COMEX 13-9490-BC-1 Disruptive Trading Violation of Rule 432– General Offenses (in part); Rule 433 – Strict Liability for the Acts of Agents. Between March and July 2013, two traders, acting on behalf of a member firm, engaged in patterned activity in which they entered into “larger-sized” orders and then cancelled them seconds after the execution of smaller orders on the opposite side of the book in order to encourage other market participants to trade with the smaller-sized orders. Pursuant to a settlement offer, the member firm neither admitted nor denied the...

U.S. Futures Exchanges Disciplinary Actions Report - September 2016

NYMEX NYMEX 16-0355-BC EFRP Violation of Rule 432.X – General Offenses. In June 2015 a member company executed two EFRP transactions on two dates with the intent that they be block trades. Because there were no corresponding related positions, the EFRP transactions were non-bona fide. Pursuant to a settlement offer, the member neither admitted nor denied the violation. $15,000 penalty. NYMEX 16-0374-BC EFRP Violation of Rule 432.X – General Offenses. On a single day in July 2015 a non-member company executed one EFRP transaction that, because there was no corresponding related position, was...

Court Clarifies Standard For CFTC Price-Based Manipulation Charge

On September 30, 2016, the United States District Court for the Southern District of New York issued an order in CFTC vs Wilson, et. al , 13 Civ. 7884 (NYSD), denying motions for summary judgment in an action by the Commodity Futures Trading Commission (“CFTC”) concerning alleged violations of the prohibition on market manipulation contained in Sections 6(c) and 9(a)(2) of the Commodity Exchange Act (“CEA”). In its order, the Court clarified the burden of proof that the CFTC faces when making a price-based manipulation claim under these sections, including that acting with the intent to...

U.S. Futures Exchanges Disciplinary Actions Report - August 2016

ICE 2015-051 Block Trades Violation of Rule 6.08(b)(i) - Order Ticket Requirements, Rule 4.07(c) - Block Trading, and Rule 4.01 - Duty to Supervise. On multiple occasions, an entity allegedly failed to comply with the recordkeeping requirements when handling customer orders, misreported the correct execution time of block trades as well as submitted a block trade beyond the 15-minute reporting period, and failed to adequately supervise its brokers’ block trade activity. $15,000 fine and cease and desist. CME CME 13-9366-BC Misc. Violation of Rule 432.X. - General Offenses (in part); Rule 532...

U.S. Futures Exchanges Disciplinary Actions Report - July 2016

ICE 2014-033 & 2015-085 Disruptive Trading; Spoofing Violation of Rule 4.02(e)(i), 4.02(e)(iv) [Current Rule 4.02(l)(2)], Rule 4.02(h) [Current Rule 4.02(l)(1)(C), and 4.02(k)(2)(C) – Trade Practice Violations and Rule 4.01 – Duty to Supervise. On January 23, 2014, a trader allegedly engaged in a pattern of trading activity where he created order book imbalances in the Cotton No. 2 futures market (“CT”) by entering multiple 500-lot March 2014 (“H14) CT orders at different price levels at the same time he was entering smaller orders on the opposite side of the H14 CT market, creating...

Court Rejects FERC’s Attempt to Limit Defendant’s Rights

On July 21, 2016, the U.S. District Court for the District of Massachusetts issued an order finding that Maxim Power Corp. and several affiliates and an employee (collectively, the “Maxim Respondents”) were entitled to a full trial on the merits and discovery rights. The ruling came in an action by the Federal Energy Regulatory Commission (“FERC”) seeking an order affirming FERC’s assessment of significant civil penalties against Maxim for alleged violations of the Federal Power Act’s (“FPA”) prohibition on market manipulation and related FERC rules. The court’s order is significant both for...

U.S. Futures Exchanges Disciplinary Actions Report - June 2016

ICE 2015-058 Misc. Violation of Rule 6.15(a)- Reportable Positions and Daily Reports and Rule 4.01- Duty to Supervise. An entity allegedly failed, on multiple occasions from January 2015–April 2015 and September 2015–October 2015, to report large trader positions. The entity did not have an adequate process or procedure in place to discover these reporting errors. $20,000 penalty and cease and desist. 2015-014 Block Trade; Misc. Violation of Rule 6.08(b)(i)- Order Ticket Requirements, Rule 4.07- Block Trading, Rule 21.04- Power to Compel Testimony and Production of Documents, and Rule 4.01-...

District Court Denies Kraft’s Motion to Dismiss Claims of Market Manipulation

On June 27, 2016, a federal judge denied Kraft Foods Group Inc.’s (“Kraft”) motion to dismiss a proposed class action against the company for allegedly manipulating the wheat futures market. [1] Harry Ploss, on behalf of himself and a proposed class (“Plaintiffs”), alleged that Kraft manipulated the wheat futures market with the intent to influence prices by engaging in two primary schemes: 1) the “long wheat futures scheme,” whereby Kraft allegedly maintained an “enormous” long position in wheat futures, never intended to be used to meet its commercial needs, with the improper intent to push...

CFTC Seeks Comments Regarding ICE Futures U.S. Rules Governing Trading on Non-Public Information After ICE and NYMEX Interpretations Differ on “Pre-Hedging” Block Trades

The Commodity Futures Trading Commission’s (“CFTC”) is seeking comments regarding an amendment (Submission No. 16-67) ICE Futures U.S. (“ICE”) has proposed to its Block Trade Frequently Asked Questions (“Block Trade FAQ”) to clarify “the extent to which parties may engage in pre-hedging or anticipatory hedging related to the consummation of a block trade.” Specifically, the amendment clarifies that, as a general matter, “Parties to a block trade may engage in pre-hedging or anticipatory hedging of the position that they believe in good faith will result from the consummation of the block...

U.S. Futures Exchanges Disciplinary Actions Report - May 2016

NYMEX NYMEX 15-0150-BC-3 and NYMEX 15-0150-BC-4 EFRP Violation of Rule 538.C – Exchange for Related Positions – Related Position. On August 15, 2014, September 5, 2014 and September 24, 2014, a non-member entity allegedly executed three non-bona fide Exchange for Related Position (“EFRP”) transactions in various energy products. In addition, on August 4, 2014, a second non-member entity allegedly entered into a non-bona fide EFRP transaction on behalf of two managed customer accounts. Both entities failed to evidence an associated related position for the EFRP transactions, thus rendering the...

CFTC Proposal Creates Jurisdictional Controversy and Uncertainty in the RTO and ISO Markets

On May 10, 2016, the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued a proposed amendment (“May 10 Proposed Amendment”) [1] to a final order issued on March 28, 2013 (the “RTO-ISO Order”) that exempted certain specified transactions of six Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) from certain provisions of the Commodity Exchange Act (“CEA”) and other CFTC regulations. [2] The May 10 Proposed Amendment would modify the RTO-ISO Order to state that the exemption provided therein does not prohibit private causes of action pursuant...

U.S. Futures Exchanges Disciplinary Actions Report - April 2016

ICE FUTURES U.S. 2015-025 Spoofing Violation of Rule 4.02(I) – Trade Practice Violations. Allegedly, an individual engaged in a pattern of trading activity in the Coffee “C” (“KC”) Futures market between March 2015 and May 2015 where numerous order book imbalances were created wherein he entered a small order relative to market conditions to buy or sell at the best price on one side and a large order to sell or buy on the opposite side of the market. Once the small order transacted, often the individual would cancel the larger order on the other side of the market. The individual engaged in...

FERC Denies Request for Discovery by Respondent in FERC Enforcement Case

On May 6, 2016, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order denying ETRACOM LLC (“ETRACOM”) and Michael Rosenberg’s Motion to Require Disclosure of Certain Materials and Information or, in the Alternative, for Issuance of Subpoena. The motion sought certain data from the California Independent System Operator Corp. (“CAISO”) to support ETRACOM’s defense that CAISO “market flaws” are at the bottom of the matter, not market manipulation as alleged by FERC staff. The Commission denied the motion on three grounds: (1) the data is unnecessary; (2) the...

FERC Notice of Alleged Violation Foreshadowed by Market Monitor Report in Southwest Power Pool

On May 6, 2016, the Office of Enforcement of the Federal Energy Regulatory Commission (“FERC”) issued a Staff Notice of Alleged Violations (“NAV”), disclosing a nonpublic investigation in which FERC staff has preliminarily determined that Saracen Energy Midwest, LP (“Saracen”) violated Southwest Power Pool, Inc.’s (“SPP”) Open Access Transmission Tariff (“Tariff”), Attachment AE, § 7.4.1(4) between August 2014 and March 2015. According to FERC staff, Saracen submitted bids for transmission congestion rights (“TCRs”) at electronically equivalent settlement points, which is prohibited by § 7.4...

FERC Proceeds With Enforcement Action Against Total Gas & Power North America

On April 28, 2016, the Federal Energy Regulatory Commission (“FERC”) issued an order [1] directing Total Gas & Power North America, Inc. (“TGPNA”) and two natural gas traders (together the “Respondents”) to show cause why they should not be found to have violated the Natural Gas Act’s (“NGA”) prohibition on market manipulation by engaging in a scheme to manipulate natural gas prices in the southwest United States to benefit related financial positions between June 2009 and June 2012. FERC is proposing civil penalties of $213.6 million against TGPNA and $1 million and $2 million against...

Court Rules on Rights of Respondents in FERC Enforcement Actions

On April 11, 2016, the United States District Court for the District of Massachusetts issued a procedural order denying motions to dismiss actions initiated by the Federal Energy Regulatory Commission (“FERC”) seeking affirmance of two orders assessing civil penalties against Lincoln Paper and Tissue, LLC, Richard Silkman (“Silkman”), and Competitive Energy Services (“CES”) (collectively, the “Respondents”) for violating Section 222 of the Federal Power Act (“FPA”) and FERC’s Anti-Manipulation Rule. In the underlying orders, FERC found that the Respondents had engaged in market manipulation...

U.S. Futures Exchanges Disciplinary Actions Report: March 2016

ICE FUTURES ICE 2014-072 Position Limits; Misc. Violation of Rule 4.04: Conduct Detrimental to the Exchange; and Rule 6.19: Position Limits for Cotton No. 2 Contracts. Allegedly, an entity may have violated Exchange Rule 4.04 when, after Exchange Staff had encouraged the entity to reduce its sizeable position in the July 2014 Cotton No. 2 (“N14 CT”) Futures Contract in a manner consistent with an orderly liquidation for the purpose of complying with the 300 lot position limit in effect at the close of business on the day prior to First Notice Day for the N14 CT Contract, the entity waited...

U.S. Futures Exchanges Liberalize Exceptions to Position Limit Aggregation Rules

Effective March 18, 2016 and April 4, 2016 [1] respectively, the major U.S. futures exchanges, ICE Futures U.S., Inc. (“ICE”) and the CME Group exchanges (“CME Group”), [2] have amended their rules regarding aggregation of positions for purposes of determining compliance with applicable position limits and accountability levels. ICE amended Rule 6.12—Aggregation of Positions [3] and CME Group has amended Rule 559.E—Limited Exceptions to Aggregation for Independently Controlled Accounts. [4] As a result of the amendments, aggregation standards will be more straightforward and will better track...

U.S. Futures Exchanges Disciplinary Actions Report: February 2016

Disciplinary Actions ICE FUTURES ICE 2012-038 Block Trades Violation of Rule 4.07(c) - Block Trading. Allegedly, an entity violated ICE Futures U.S. ("IFUS") Rule 4.07(c) by failing to report a 180 lot block trade, that was erroneously submitted to IFUS as a 180 lot exchange for physical transaction, within the 5 minute reporting window for block trades in Russell 2000 Index Mini Futures Contracts. $25,000 fine. CME GROUP CME 14-0004-BC Misc. Violation of Rule 432(c) and (g) - General Offenses (in part). A non-member individual allegedly executed multiple round-turn transactions in various E...

U.S. Futures Exchanges Disciplinary Actions Report: January 2016

**To make our monthly futures exchange reports more concise and user-friendly, we have narrowed the scope to cover relevant enforcement actions and generally not to cover routine exchange issuances. Disciplinary Actions CME GROUP CME 13-9587-BC-3 Pre-Arranged Trades Violation of Rules 521 - Requirements for Open Outcry Trades (in part); 539 - Prearranged, Pre-negotiated and Noncompetitive Trades Prohibited (in part). On more than one occasion between July 9, 2013, and July 31, 2015, a member allegedly executed a portion of customer orders that was not bid openly and competitively in the pit...

TOTAL Challenges Legality of FERC Enforcement Processes

On January 27, 2016, TOTAL Gas & Power North America, Inc. ("TGPNA") and two natural gas traders filed a complaint for declaratory relief in the U.S. District Court for the Western District of Texas against the Federal Energy Regulatory Commission ("FERC") claiming that FERC intends to violate TGPNA's statutory and constitutional rights by proceeding with an administrative enforcement action against the company for alleged violations of the Natural Gas Act's ("NGA") prohibition on market manipulation. [1] TGPNA's complaint represents a direct attack on the legality of FERC's existing...

Monthly Futures Exchange Issuance Report: December 2015

December's Highlight On November 4, 2015, the Chairman of the CFTC, Timothy Massad, gave a speech to the Futures Industry Association Futures and Options Expo, in which he focused on the subject of swap data reporting. The Chairman noted the importance of data reporting to swap regulation generally and lauded the progress that has been made since Dodd-Frank. However, despite the significant progress in swap data reporting, the Chairman stressed that improvements to the reporting system are still necessary and that swap dealers need to improve the quality of their reporting, focusing on...

FERC Clarifies Scope of Proposed RTO and ISO Disclosure Requirements

December 21, 2015

On December 8, 2015, the Federal Energy Regulatory Commission ("FERC") Office of Enforcement held a technical conference respecting FERC's recent Notice of Proposed Rulemaking ("NOPR") on Connected Entity Data. As discussed in an earlier post , if adopted, the NOPR would dramatically increase the amount of information that entities participating in Regional Transmission Organization ("RTO") and Independent System Operator ("ISO") markets would be required to disclose regarding their affiliates, contractual arrangements, and employees. In particular, the NOPR would require each market...

CFTC Settles Gas Index Manipulation Claim While FERC Allegations Remain

CFTC Order Accepting Settlement with Total Gas & Power North America, Inc. & Therese Tran for Attempted Manipulation of Natural Gas Monthly Index Settlement Prices On December 7, 2015, the Commodity Futures Trading Commission ("CFTC" or the "Commission") issued an order instituting proceedings, making findings, and imposing sanctions (" Settlement Order ") to resolve charges against Total Gas & Power North America, Inc. ("TGPNA") and one of its natural gas traders, Therese Tran, for attempted manipulation of natural gas monthly index settlement prices. The Settlement Order...

Monthly Futures Exchange Issuance Report: November 2015

November's Highlight In November there were a significant number of disciplinary actions across the exchanges related to pre-arranged trading, including the execution of block trades. The exchanges clearly continue to focus on these types of violations and market participants should be conscious of the rules for pre-arranged trading and the entry of block trades. The fines for these violations can be significant and can include suspensions. For example, this month an entity was fined $70,000 for the actions its traders took to enter buy and sell orders opposite one another to transfer...

Monthly Futures Exchange Issuance Report: October 2015

October's Highlight October saw the first criminal conviction pursuant to Section 4c(a) for spoofing. A jury concluded that for approximately three months, an individual used a computer algorithm to place orders he did not intend to execute for the purpose of giving the impression that there was significant interest in orders he placed on the other side of the market. The individual and his trading company had already settled allegations of spoofing with multiple CME Group exchanges (CBOT, CEI, CME, and NYMEX) as well as the CFTC in 2013. The CFTC settlement required both to pay a $1.4...

Monthly Futures Exchange Issuance Report: September 2015

September's Highlight September saw a handful of settlements of ICE Futures enforcement actions related to position limit violations under Rule 6.20(b). The settlements of these actions included monetary fines, disgorgement of profits, and cease and desist orders. Of note, an action related to a single, self-reported violation of the applicable spot month position limit under Rule 6.20(b) resulted in a $35,000 fine and a cease and desist order. These settlements serve as reminders that position limits are tracked intra-day and to the single lot, and exceeding a position limit is a per se...

FERC Proposes To Expand Classes Of Information Collected From Participants In RTO And ISO Markets

September 22, 2015

On September 17, 2015, the Federal Energy Regulatory Commission ("FERC") issued a notice of proposed rulemaking ("NOPR") proposing to significantly expand the information that entities would be required to disclose in order to participate in the wholesale markets administered by Regional Transmission Organizations ("RTO") and Independent System Operators ("ISO"). Notably, while market participants already are required to disclose certain affiliate relationships to the RTOs and ISOs in which they participate, FERC's proposal would require market participants to provide additional...

Monthly Futures Exchange Issuance Report: August 2015

August's Highlight This past month, the NYMEX Business Conduct Committee ("Panel") entered into a settlement with an entity to resolve alleged violations of Exchange Rule 526- Block Trades and two Market Regulation Advisory Notices, RA1326-4 and RA-1327-4, related to pre-hedging of block trades. The settlement resulted in a fine of $50,000 and disgorgement of $51,315.60 in profits, as well as a $15,000 fine and 5-day suspension against the individual trader involved. Specifically, the Panel found that on four different trade dates the trader pre-hedged block trades by "trading on Globex...

BP Initial Decision: The Significance of Change

On August 13, 2015, the administrative law judge ("ALJ") assigned to hear evidence in BP America Inc. et. Al (Docket No. IN13-15) issued an Initial Decision in which she found that BP America Inc., and certain of its affiliates (collectively "BP") engaged in market manipulation by intentionally trading to influence index prices to benefit a related financial position. Putting aside the merits of the BP case, the Initial Decision is a good reminder of the kind of circumstantial evidence that regulators might interpret as indicia of manipulation. The reoccurring theme is CHANGE. Whether it be...

BP Initial Decision Adopts FERC Staff's Positions

Seven years after the Federal Energy Regulatory Commission ("FERC" or the "Commission") first opened an investigation into the trading practices of BP America Inc. and certain of its affiliates (collectively "BP"), on August, 13, 2015, Administrative Law Judge Carmen Cintron ("ALJ Cintron") issued her Initial Decision in the case of BP America Inc. , finding that "BP engaged in market manipulation" by "intentionally [selling] large volumes of next-day physical gas at HSC in a way designed to benefit their corresponding short financial positions." [1] ALJ Cintron agreed with FERC Staff...

Monthly Futures Exchange Issuance Report: July 2015

July's Highlight Exchange for related positions ("EFRPs") involve an off-Exchange execution of an Exchange contract and, on the opposite side of the market, the simultaneous execution of an equivalent quantity of the corresponding cash or physical position (Exchange for Physical- "EFP"); corresponding related OTC swap or OTC derivative (Exchange for Swap- "EFS"); corresponding futures contract (Exchange for Risk- "EFR"); or the corresponding related OTC option position (Exchange of Options for Options- "EOO"). EFRPs can be great trading tools, offering users the ability to engage in...

CFTC v. Kraft Foods: What is Market Manipulation?

The Commodity Futures Trading Commission (CFTC) is engaged in its first court battle interpreting its new anti-manipulation authority under the Commodity Exchange Act (CEA) as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank): CFTC v. Kraft Foods Group, Inc. and Mondelēz Global LLC . [1] The case involves allegations that Kraft Foods manipulated the wheat futures and cash markets in 2011. While the case is still in its infancy, and additional facts may come to light that clarify the CFTC's position, the Complaint can be read to suggest that conduct...

Monthly Futures Exchange Issuance Report: June 2015

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. June Highlight CME Group has released a Webinar on Block Trades summarizing the regulatory requirements in relation to block trades in eligible CME, CBOT, NYMEX, and COMEX products, including minimum block thresholds, pricing, reporting, and important requirements around the use of non-public information. Block trades - large, privately negotiated trades that meet minimum quantity...

Scope of Trial De Novo Debated in Barclays Electricity Manipulation Case

After almost eight years since the Federal Energy Regulatory Commission (FERC) commenced its investigation against Barclays Bank PLC (Barclays) and four of its traders, Scott Connelly, Daniel Brin, Karen Levine and Ryan Smith, for allegedly manipulating the California electricity markets, Barclays filed its answer in federal district court. As expected, Barclays denied all of FERC's substantive allegations and asserted that the District Court should give no merit to FERC's findings of fact or legal conclusions. FERC, according to Barclays and the individual traders, must prove its case before...

Monthly Futures Exchange Issuance Report: May 2015

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. May's Highlight This past month, CME Group released Market Regulation Advisory Notice RA1506-5, which conveniently combines in one location all of CME Group's prior regulatory guidance on block trades in CME, CBOT, NYMEX, and COMEX products. CME Group has been giving increasing scrutiny to block trades in recent years and unfamiliarity with the specific rules related to such trades could...

Federal District Court Denies Barclays Motion to Dismiss FERC Petition Which Alleges Manipulation and Assesses Significant Penalties

For the past two years we have been tracking and reporting on an enforcement proceeding brought by the Federal Energy Regulatory Commission ("FERC") against Barclays Bank PLC ("Barclays"), Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (collectively, the "Traders" and together with Barclays, "Defendants") for alleged manipulative trading in the western electricity markets from November 2006 to December 2008. Yesterday, the United States District Court for the Eastern District of California denied a motion by the Defendants to dismiss the manipulation action. Although the court'...

Monthly Futures Exchange Issuance Report: April 2015

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. On April 21, 2015, the CFTC announced via press release that charges had been filed against a resident of the United Kingdom ("UK"), Navinder Singh Sarao ("Sarao"), and his company, Nav Sarao Futures Limited PLC, for price manipulation and spoofing. The charges came after a comprehensive investigation of Sarao's trading activity by the CFTC, which included assistance from the SEC, DOJ,...

Monthly Futures Exchange Issuance Report: February 2015

February's Highlight This month, CME Group announced fines totaling $1.75 million against derivatives broker Newedge USA for violations of exchange rules in certain metal markets over the course of two years. Newedge agreed to the fine pursuant to an offer of settlement in which Newedge neither admitted nor denied the rule violations upon which the penalty was based. Specifically, Panels for both the NYMEX Business Conduct Committee and the COMEX Business Conduct Committee found that Newedge violated exchange Rule 432, Rule 529, Legacy Rule 538.A, Legacy Rule 538.G, and Legacy Rule 538.H.,...

Monthly Futures Exchange Issuance Report - January 2015

January's Highlight The exchanges are starting off 2015 with a continued focus on investigating and penalizing violations of disruptive trading practices, as well as pre-arranged trading and block trading. These three categories represented a large majority of the exchanges' enforcement efforts in 2014, and from what we saw in January, they will continue to remain a focus going forward. On this note, this month the ICE Futures Exchange will implement an amendment to Rule 4.02, adding section (l) to consolidate rules that prohibit disruptive trading practices. The new text of Rule 4.02(l)...

FERC Demands Due Diligence and Continues Focus on ISO Communications

January 24, 2013

Last month, the Federal Energy Regulatory Commission (FERC) issued an Order Approving Stipulation and Consent Agreement [1] (EnerNOC, Inc., 141 FERC ¶ 61,211 (2012)) to resolve an investigation by the Office of Enforcement (Enforcement) into whether EnerNOC, Inc. (EnerNOC) submitted inaccurate metering data to ISO New England (ISO-NE) without exercising due diligence and to address multiple late filings by EnerNOC's wholly-owned subsidiary, Celerity Energy Partners San Diego LLC (Celerity). EnerNoc is a demand response provider and Celerity is an operator/lessor of Network Distribution...

Court Finds FERC Overstepped Jurisdictional Boundaries with Order 720

A panel of the United States Court of Appeals for the Fifth Circuit has vacated the Federal Energy Regulatory Commission's (FERC) Order Nos. 720 and 720-A , which imposed new requirements on non-interstate pipelines not normally subject to FERC's jurisdiction over interstate natural gas pipelines. In an October 24, 2011 decision , the Court concluded that the orders exceed the scope of FERC's statutory authority under the Natural Gas Act of 1938 (NGA). In their petitions for review of the orders, the Texas Pipeline Association and the Railroad Commission of Texas argued that FERC had exceeded...

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