Energy trading facilities

(a)

Definitions

Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended by redesignating paragraphs (13) through (33) as paragraphs (15) through (35), respectively, and by inserting after paragraph (12) the following:

(13)

Energy commodity

The term energy commodity means a commodity (other than an excluded commodity, a metal, or an agricultural commodity) that— (A)is used as a source of energy, including but not limited to— (i)crude oil; (ii)gasoline, diesel fuel, heating oil, and any other product derived or refined from crude oil; (iii)natural gas, including methane, propane, and any other gas or liquid derived from natural gas; and (iv)electricity; or (B)results from the burning of fossil fuels to produce energy, including but not limited to carbon dioxide and sulfur dioxide. (14)

Energy trading facility

The term energy trading facility means a trading facility that— (A)is not a designated contract market; and (B)facilitates the execution or trading of agreements, contracts, or transactions in an energy commodity that are not spot sales of a cash commodity or sales of a cash commodity for deferred shipment or delivery, and that are entered into on a principal-to-principal basis solely between persons that are eligible commercial entities at the time the persons enter into the agreement, contract, or transaction; and (i)facilitates the clearance and settlement of such agreements, contracts, or transactions; or (ii)the Commission determines performs a significant price discovery function in relation to an energy commodity listed for trading on a trading facility or in the cash market for the energy commodity. In making a determination whether a trading facility performs a significant price discovery function the Commission may consider, as appropriate— (I)the extent to which the price of an agreement, contract, or transaction traded or executed on the trading facility is derived from or linked to the price of a contract in an energy commodity listed for trading on a designated contract market; (II)the extent to which cash market bids, offers, or transactions in an energy commodity are directly based on, or quoted at a differential to, the prices generated by agreements, contracts, or transactions in the same energy commodity being traded or executed on the trading facility; (III)the volume of agreements, contracts, or transactions in the energy commodity being traded on the trading facility; (IV)the extent to which data regarding completed transactions are posted, disseminated, or made available immediately after completion of such transactions, with or without a fee, to other market participants and other persons; (V)the extent to which an arbitrage market exists between the agreements, contracts, or transactions traded or executed on the trading facility and a contract in an energy commodity listed for trading on a designated contract market; and (VI)such other factors as the Commission determines appropriate.

(b)

Commission oversight of energy trading facilities

Section 2(h) of such Act (7 U.S.C. 2(h)) is amended— (1)in paragraph (3)(B) after an electronic trading facility by inserting that is not an energy trading facility; and (2)by adding at the end the following:

(7)

Energy trading facilities

Notwithstanding any other provision of this Act, an energy trading facility shall be subject to section 2(j).

(c)

Standards applicable to energy trading facilities

Section 2 of such Act (7 U.S.C. 2) is amended by adding at the end the following:

(j)

Registration of energy trading facilities

(1)

In general

It shall be unlawful for any person to enter into an agreement, contract, or transaction for future delivery of an energy commodity that is not a spot sale of a cash commodity or a sale of a cash commodity for deferred shipment or delivery, on or through an energy trading facility unless such facility is registered with the Commission as an energy trading facility. (2)

Applications

Any trading facility applying to the Commission for registration as an energy trading facility shall submit an application to the Commission that includes any relevant materials and records, consistent with the Act, that the Commission may require. (3)

Commission action

The Commission shall make a determination whether to approve an application for registration as an energy trading facility within 120 days after such application is submitted. (4)

Criteria for registration

To be registered as an energy trading facility, the applicant shall demonstrate to the Commission that the trading facility meets the criteria specified in this paragraph. (A)

Prevention of price manipulation and excessive speculation

The trading facility shall have the capacity to prevent price manipulation, excessive speculation, price distortion, and disruption of the delivery or cash-settlement process through market surveillance, compliance, and enforcement practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. (B)

Monitoring of trading

The trading facility shall monitor trading to prevent price manipulation, excessive speculation, price distortion, and disruption of the delivery or cash-settlement process. (C)

Contracts not readily susceptible to manipulation

The trading facility shall list for trading only contracts that are not readily susceptible to manipulation. (D)

Financial integrity of transactions

A trading facility that facilitates the clearance and settlement of agreements, contracts, or transactions by a derivatives clearing organization shall establish and enforce rules and procedures for ensuring the financial integrity of such agreements, contracts, and transactions. (E)

Ability to obtain information

The trading facility shall establish and enforce rules that will allow the trading facility to obtain any necessary information to perform any of the functions described in this subsection, including the capacity to carry out such international information-sharing agreements as the Commission may require. (F)

Position limits or accountability levels

To reduce the threat of price manipulation, excessive speculation, price distortion, or disruption of the delivery or cash-settlement process, the trading facility shall adopt position limits or position accountability levels for speculators, where necessary and appropriate. (G)

Emergency authority

The trading facility shall adopt rules to provide for the exercise of emergency authority, in consultation and cooperation with the Commission, where necessary and appropriate, including the authority to— (i)liquidate open positions in any contract; (ii)suspend or curtail trading in any contract; and (iii)require market participants in any contract to meet special margin requirements. (H)

Daily publication of trading information

The trading facility shall make public daily information on settlement prices, volume, open interest, and opening and closing ranges for actively traded contracts on the facility. (I)

Deterrence of abuses

The trading facility shall establish and enforce trading and participation rules that will deter abuses and shall have the capacity to detect, investigate violations of, and enforce those rules, including means to— (i)obtain information necessary to perform the functions required under this section; or (ii)use technological means to capture information that may be used in establishing whether rule violations have occurred. (J)

Trade information

The trading facility shall maintain rules and procedures to provide for the recording and safe storage of all identifying trade information in a manner that enables the facility to use the information for the purposes of assisting in the prevention of price manipulation, excessive speculation, price distortion, or disruption of the delivery or cash-settlement process, and providing evidence of any violations of the rules of the facility. (K)

Trading procedures

The trading facility shall establish and enforce rules or terms and conditions defining, or specifications detailing, trading procedures to be used in entering and executing orders traded on the facility, including procedures to provide participants with impartial access to the trading facility. (L)

Compliance with rules

The trading facility shall monitor and enforce the rules of the facility, including any terms and conditions of any contracts traded on or through the facility and any limitations on access to the facility. (M)

Disclosure of general information

The trading facility shall disclose publicly and to the Commission information concerning— (i)contract terms and conditions; (ii)trading conventions, mechanisms, and practices; (iii)financial integrity protections; and (iv)other information relevant to participation in trading on the facility. (N)

Fitness standards

The trading facility shall establish and enforce appropriate fitness standards for directors, members of any disciplinary committee, and any other persons with direct access to the facility, including any parties affiliated with any of the persons described in this paragraph. (O)

Conflicts of interest

The trading facility shall establish and enforce rules to minimize conflicts of interest in the decision making process of the facility and establish a process for resolving such conflicts of interest. (P)

Recordkeeping

The trading facility shall maintain records of all activities related to the business of the facility in a form and manner acceptable to the Commission for a period of 5 years. (Q)

Antitrust considerations

Unless necessary or appropriate to achieve the purposes of this Act, the trading facility shall endeavor to avoid— (i)adopting any rules or taking any actions that result in any unreasonable restraint of trade; or (ii)imposing any material anticompetitive burden on trading on the facility. (5)

Criteria for energy trading facilities

To maintain the registration as an energy trading facility, the trading facility shall comply with all of the criteria in paragraph (4). Failure to comply with any of these criteria shall constitute a violation of this Act. The trading facility shall have reasonable discretion in establishing the manner in which it complies with the criteria in paragraph (4). (6)

Position limits and accountability levels

(A)

Duty of Commission

The Commission shall ensure that the position limits and accountability levels applicable to contracts in an energy commodity listed for trading on a designated contract market and the position limits and accountability levels applicable to similar contracts in the same energy commodity listed for trading on an energy trading facility— (i)appropriately prevent price manipulation, excessive speculation, price distortion, and disruption of the delivery or cash-settlement process; and (ii)are on a parity with each other and applied in a functionally equivalent manner. (B)

Commission review

Upon learning that a person has exceeded an applicable position limit or accountability level in an energy commodity, the Commission shall obtain such information as it determines to be necessary and appropriate regarding all of the positions held by such person in such energy commodity and take such action as may be necessary and appropriate, in addition to any action taken by an energy trading facility or a designated contract market, to require, or direct an energy trading facility or a designated contract market to require, such person to limit, reduce, or liquidate any position to prevent or reduce the threat of price manipulation, excessive speculation, price distortion, or disruption of the delivery or cash-settlement process. (C)

Information to commission

In order to make any determination required under this section, the Commission may request all relevant information regarding all of the positions held by any person in the energy commodity for which the person has exceeded a position limit or accountability level, including positions held or controlled or transactions executed— (i)on or through— (I)a designated contract market; (II)an energy trading facility; (III)an electronic trading facility operating pursuant to paragraphs (3) through (5) of section 2(h); (IV)an exempt board of trade operating pursuant to section 5d; (V)a derivative transaction execution facility; or (VI)a foreign board of trade; (ii)within the scope of section 2(g), or paragraphs (1) and (2) of section 2(h); or (iii)in the cash market for the commodity. (D)

Requirement to retain and provide position information

(i)

In general

Any person entering into or executing an agreement, contract, or transaction with respect to an energy commodity on a designated contract market or on an energy trading facility shall retain such books and records as the Commission may require in order to provide such information upon request, and upon request shall promptly provide such information to the Commission or the Department of Justice. (ii)

Alternate means of obtaining position information

Notwithstanding this requirement to retain and provide position information, the Commission may alternatively choose to obtain any of the position information specified in this paragraph from the trading facility at which such positions are maintained. (E)

Criteria for commission determination

In making any determination to require a limitation, reduction, or liquidation of any position with respect to an energy commodity, the Commission may consider, as appropriate— (i)the person’s open interest in a contract, agreement, or transaction involving an energy commodity relative to the total open interest in such contracts, agreements, or transactions; (ii)the daily volume of trading in such contracts, agreements or transactions; (iii)the person’s overall position in related contracts, including options, and the overall open interest or liquidity in such related contracts and options; (iv)the potential for such positions to cause or allow price manipulation, excessive speculation, price distortion, or disruption of the delivery or cash-settlement process; (v)the person’s record of compliance with rules, regulations, and orders of the Commission, a designated contract market, or an energy trading facility, as appropriate; (vi)the person’s financial ability to support such positions on an ongoing basis; (vii)any justification provided by the person for such positions; and (viii)other such factors determined to be appropriate by the Commission.

(d)

Information for price discovery determination

(1)Section 2(h)(5)(B) of such Act (7 U.S.C. 2(h)(5)(B)) is amended— (A)by striking and at the end of clause (ii)(II); (B)by adding and at the end of clause (iii)(III); and (C)by adding at the end the following:

(iv)to the extent that the electronic trading facility provides for the trading of agreements, contracts, or transactions in an energy commodity, provide the Commission with such information as the Commission determines necessary to evaluate whether the energy trading facility performs a significant price discovery function in relation to a contract in an energy commodity listed for trading on a trading facility or in the cash market for the energy commodity, including the provision of such requested information on a continuous basis;

(2)Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 7a(b)) is amended by adding the following:

(5)

Price discovery for energy commodity

A registered derivatives transaction execution facility shall, to the extent that it provides for the trading of any contract of sale of a commodity for future delivery (or option on such contract) based on an energy commodity, provide the Commission with such information as the Commission determines necessary to evaluate whether the registered derivatives transaction execution facility performs a significant price discovery function in relation to a contract in an energy commodity listed for trading on a trading facility or in the cash market for the energy commodity, including the provision of such requested information on a continuous basis.

(e)

Conforming amendments

The Commodity Exchange Act is amended— (1)in section 1a(29) (7 U.S.C. 1a(29))— (A)in subparagraph (C), by striking and; (B)in subparagraph (D), by striking the period and inserting ; and; and (C)by adding at the end the following:

(E)an energy trading facility registered under section 2(j).

;

(2)in section 4(a) (7 U.S.C. 6(a))— (A)in paragraph (1), by inserting registered energy trading facility or a after subject to the rules of a; and (B)in paragraph (3), by striking or derivatives transaction execution facility and inserting , derivatives transaction execution facility, or energy trading facility; (3)in section 4(c) (7 U.S.C. 6(c)), by inserting registered energy trading facility or in the parenthetical after including any; (4)in section 4a(a) (7 U.S.C. 6a(a))— (A)in the 1st sentence, by striking or derivatives transaction execution facilities and inserting , derivatives transaction execution facilities, or energy trading facilities; and (B)in the 2nd sentence, by striking or derivatives transaction execution facility and inserting , derivatives transaction execution facility, or energy trading facility; (5)in section 4a(b) (7 U.S.C. 6a(b))— (A)in paragraph (1), by striking or derivatives transaction execution facility or facilities and inserting derivatives transaction execution facility or facilities, or energy trading facility or facilities; (B)in paragraph (2), by striking or derivatives transaction execution facility and inserting , derivatives transaction execution facility, or energy trading facility; (6)in section 4a(e) (7 U.S.C. 6a(e))— (A)in the 1st sentence— (i)by inserting or by any energy trading facility after registered by the Commission; (ii)by striking or derivatives transaction execution facility and inserting , derivatives transaction execution facility, or energy trading facility; and (iii)by inserting energy trading facility, before or such board of trade each time it appears; and (B)in the 2nd sentence, by inserting or energy trading facility after registered by the Commission; (7)in each of sections 4e, 4i, paragraphs (1), (2), and (3) of section 5c(b), and 6(b) (7 U.S.C. 6e, 6i, 7a–2(b)(1), (2), and (3), and 8(b)), by striking or derivatives transaction execution facility and inserting , derivatives transaction execution facility, or energy trading facility each place it appears; (8)in each of paragraphs (2) and (3) of section 4l (7 U.S.C. 6l(2) and (3)), by striking or derivatives transaction execution facilities and inserting derivatives transaction execution facilities, or energy trading facilities; (9)in section 6(b) (7 U.S.C. 8(b)), by striking sections 5 through 5b and inserting section 2(j), sections 5 through 5b,; and (10)in section 6d(1) (7 U.S.C. 13a–2(1)), by inserting energy trading facility, after derivatives transaction execution facility,.