Today, a broad coalition of exchanges, brokers and market participants in the United States financial industry filed a "friend of the court" brief in federal appeals court challenging the legal authority of the Federal Energy Regulatory Commission (FERC) to prosecute claims that Amaranth Advisors manipulated the price of natural gas futures traded on a futures exchange.
The coalition, which is composed of the Futures Industry Association (FIA), Managed Funds Association (MFA), CME Group Inc. (CME), New York Mercantile Exchange (NYMEX) and the International Swaps and Derivatives Association, Inc. (ISDA), argues in its brief that FERC’s proceeding against Amaranth would harm the futures industry by creating two separate legal standards for determining when trading on futures exchanges should be construed as market manipulation. The brief also stresses the importance of preserving the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) over U.S. futures markets and urges the court to support Amaranth’s request for a stay of the FERC proceeding until this important jurisdictional issue is resolved.
The coalition has complete confidence in the CFTC’s experience and expertise to deal with any attempts to manipulate futures prices and believes that any effort to diminish the CFTC’s exclusive jurisdiction will be inimical to the health of the $5 trillion a day futures industry. The coalition neither supports nor tolerates any form of price manipulation and the brief takes no position on the substance of the FERC’s allegations.
Congress determined in the 1974 Commodity Exchange Act that it was in the public interest that the CFTC "shall have exclusive jurisdiction" over commodity futures trading in the United States. The CFTC has in fact exercised that jurisdiction in this matter. On July 25th, 2007, the CFTC sued Amaranth for attempted price manipulation of natural gas futures contracts traded on the NYMEX. That same week, FERC filed its own administrative proceeding against Amaranth based upon the same alleged misconduct but applying a different legal standard, a standard never before applied to the futures industry.
Staying FERC’s enforcement proceeding for the short time it will take to review the purely legal question of FERC’s claimed jurisdiction will cause no harm. The public interest and the interest of market participants will be damaged if both enforcement actions are allowed to continue in parallel, creating uncertainty as to the legal standard governing trading on futures exchanges. Congress vested "exclusive jurisdiction" in the CFTC to make certain that a single, expert legal standard, based upon the Commodity Exchange Act and CFTC regulations, applied to the U.S. futures industry. The FERC’s proceeding for futures price manipulation creates costly uncertainty as to the standards by which trading on U.S. futures exchanges will be measured, which is contrary to both law and the public interest. The FERC proceeding should be stayed.