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On Friday, the United States Court of Appeals for the District of Columbia Circuit told the Federal Energy Regulatory Commission (FERC) that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over manipulative conduct in natural gas futures markets, even if that conduct impacts FERC jurisdictional gas markets. See Brian Hunter v. Federal Energy Regulatory Commission, Case No. 11-1477.

FERC penalized Brian Hunter, a futures trader for the now-defunct Amaranth Advisors, $30 million for engaging in manipulative conduct in the natural gas market. But the manipulative conduct did not involve a FERC jurisdictional transaction. It involved future transactions—over which CFTC has day-to-day jurisdiction, not FERC. FERC had claimed, however, that because Mr. Hunter’s manipulation affected the price in FERC-regulated natural gas markets, it could exercise jurisdiction over manipulation in the futures markets.

The court quickly disabused FERC of that notion—only five weeks passed from oral argument to decision—saying that the CFTC has “exclusive jurisdiction … with respect to accounts, agreements[,]….and transactions involving contracts of sale of a commodity for future delivery, traded or executed on a CFTC-regulated exchange.” Therefore, the court concluded that the CFTC has exclusive jurisdiction over manipulation of natural gas futures contracts and that the Energy Policy Act of 2005 did not repeal that exclusive jurisdiction—not explicitly and certainly not implicitly.

In so ruling, the court rejected FERC’s argument that when there is manipulation in one market that directly or indirectly affects the other market (in this case manipulation in CFTC regulated futures market affecting FERC regulated gas markets) both agencies have an enforcement role. As a result of this ruling, FERC will only be able to utilize its enforcement authority to penalize market participants for manipulative conduct in FERC jurisdictional transactions, not transactions in other markets (futures here), even when the manipulative conduct in those other markets might impact a FERC jurisdictional market.

With the jurisdictional dispute now resolved, the CFTC will likely restart its suspended enforcement action against Hunter.

Check frequently for updated information on the Dodd-Frank Act, the JOBS Act, and other important matters regarding regulation of derivatives and securities.