Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

On March 28, 2013, the Commodity Futures Trading Commission issued a final rule that largely affirmed its earlier proposal to exempt certain FERC and Texas PUC regulated transactions from CFTC jurisdiction and provided helpful clarifications to market participants. In its proposed order, the CFTC proposed to define and then exempt, subject to conditions, from CFTC regulation four types of transactions, Financial Transmission Rights, Energy Transactions, Forward Capacity Transactions and Reserve or Regulation Transactions. (Cite our August 22 blog CFTC Proposes Exemption to Regulation of Transactions in ISO-RTO Markets as “Swaps” under CEA) .

In response to comments:

  • While the CFTC refused to exempt additional transactions that are “logical outgrowths” of the four transactions, they clarified that the exemption is not limited “to those products that are currently traded in a Requesting Party’s markets” (slip Op. at 220) and include any products now or in the future, pursuant to a FERC or PUCT-approved tariff and that fall within these definitions.
  • The CFTC clarified that energy transactions include virtual and convergence bids.
  • The Commission refused to impose position limits on the transactions exempted.
  • The CFTC said that the requisite performance of an energy transaction may occur in the Real-Time Market through “a cash payment or receipt at the price established in the Day-Ahead Market or Real Time Market (as permitted by the tariff)” (slip Op. at 33) but that any energy transaction settling based upon the Day-Ahead price must be inextricably linked to physical delivery of electric energy.
  • While the CFTC refused to extend the exemption to any person that satisfies the market participant eligibility criteria established by the RTOs, the CFTC expanded the scope of appropriate persons for purposes of the exemption to include “a person who actively participates in the generation, transmission or distribution of electric energy, i.e., ‘a person in the business of (1) generating, transmitting or distributing electric energy or (2) providing electric energy services that are necessary to support the reliable operation of the transmission system.’” (slip Op. at 77.) Such a person need not own physical transmission or generation assets, as long as that person satisfies these criteria. The CFTC said, however, that the exemption does not apply to persons or entities engaged in purely financial transactions and who are not eligible contract participants or meet the criteria in Sections 4(c)(3)(A) through (J) of the Commodity Exchange Act.