FR Doc E9-25238[Federal Register: October 26, 2009 (Volume 74, Number 205)]
[Notices]
[Page 54966-54969]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26oc09-37]
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COMMODITY FUTURES TRADING COMMISSION
Notice of Intent, Pursuant to the Authority in Section 2(h)(7)
of the Commodity Exchange Act and Commission Rule 36.3(c)(3), To
Undertake a Determination Whether the PJM WH Real Time Peak Daily
Contract; PJM WH Real Time Peak Contract; PJM WH Real Time Off-Peak
Contract; PJM WH Day Ahead LMP Peak Daily Contract; and PJM WH Real
Time Off-Peak Daily Contract, Offered for Trading on the
IntercontinentalExchange, Inc., Perform Significant Price Discovery
Functions
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of action and request for comment.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is undertaking a review to determine whether the PJM
\1\ WH \2\ Real Time Peak Daily (``PDP'') contract; PJM WH Real Time
Peak (``PJM'') contract; PJM WH Real Time Off-Peak (``OPJ'') contract;
PJM WH Day Ahead LMP \3\ Peak Daily (``PDA'') contract; and PJM WH Real
Time Off-Peak Daily (``ODP'') contract, offered for trading on the
IntercontinentalExchange, Inc. (``ICE''), an exempt commercial market
(``ECM'') under Sections 2(h)(3)-(5) of the Commodity Exchange Act
(``CEA'' or the ``Act''), perform significant price discovery
functions. Authority for this action is found in Section 2(h)(7) of the
CEA and Commission rule 36.3(c) promulgated thereunder. In connection
with this evaluation, the Commission invites comment from interested
parties.
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\1\ The acronym ``PJM'' stands for Pennsylvania New Jersey
Maryland Interconnection, LLC (``PJM Interconnection''), and
signifies the regional electricity transmission organization that
coordinates the generation and distribution of electricity in all or
parts of 13 states and the District of Columbia.
\2\ The acronym WH signifies the PJM's Western Hub.
\3\ The term ``LMP'' stands for ``locational marginal price''
and represents the additional cost associated with producing an
incremental amount of electricity. LMPs account for generation
costs, congestion along the transmission lines, and electricity
loss.
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DATES: Comments must be received on or before November 10, 2009.
ADDRESSES: Comments may be submitted by any of the following methods:
Follow the instructions for submitting comments: Federal
eRulemaking Portal: http://www.regulations.gov.
E-mail: [email protected]. Include PJM WH Real Time Peak
Daily (PDP) Contract; PJM WH Real Time Peak (PJM) Contract; PJM WH Real
Time Off-Peak (OPJ) Contract; PJM WH Day Ahead LMP Peak Daily (PDA)
Contract; and/or PJM WH Real Time Off-Peak Daily (ODP) Contract in the
subject line of the message, depending on the subject contract(s) to
which the comments apply.
Fax: (202) 418-5521.
Mail: Send to David A. Stawick, Secretary, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW., Washington, DC 20581.
Courier: Same as mail above.
All comments received will be posted without change to http://
www.CFTC.gov/.
FOR FURTHER INFORMATION CONTACT: Gregory K. Price, Industry Economist,
Division of Market Oversight, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC
[[Page 54967]]
20581. Telephone: (202) 418-5515. E-mail: [email protected]; or Susan
Nathan, Senior Special Counsel, Division of Market Oversight, same
address. Telephone: (202) 418-5133. E-mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
On March 16, 2009, the CFTC promulgated final rules implementing
provisions of the CFTC Reauthorization Act of 2008 (``Reauthorization
Act'') \4\ which subjects ECMs with significant price discovery
contracts (``SPDCs'') to self-regulatory and reporting requirements, as
well as certain Commission oversight authorities, with respect to those
contracts. Among other things, these rules and rule amendments revise
the information-submission requirements applicable to ECMs, establish
procedures and standards by which the Commission will determine whether
an ECM contract performs a significant price discovery function, and
provide guidance with respect to compliance with nine statutory core
principles applicable to ECMs with SPDCs. These rules became effective
on April 22, 2009.
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\4\ 74 FR 12178 (Mar. 23, 2009); these rules became effective on
April 22, 2009.
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In determining whether an ECM's contract is or is not a SPDC, the
Commission will consider the contract's material liquidity, price
linkage to other contracts, potential for arbitrage with other
contracts traded on designated contract markets or derivatives
transaction execution facilities, use of the ECM contract's prices to
execute or settle other transactions, and other factors.
In order to facilitate the Commission's identification of possible
SPDCs, Commission rule 36.3(c)(2) requires that an ECM operating in
reliance on section 2(h)(3) promptly notify the Commission and provide
supporting information or data concerning any contract: (i) That
averaged five trades per day or more over the most recent calendar
quarter; and (ii)(A) for which the ECM sells price information
regarding the contract to market participants or industry publications;
or (B) whose daily closing or settlement prices on 95 percent or more
of the days in the most recent quarter were within 2.5 percent of the
contemporaneously determined closing, settlement, or other daily price
of another agreement.
II. Determination of a SPDC
A. The SPDC Determination Process
Commission rule 36.3(c)(3) establishes the procedures by which the
Commission makes and announces its determination on whether a specific
ECM contract serves a significant price discovery function. Under those
procedures, the Commission will publish a notice in the Federal
Register that it intends to undertake a determination as to whether the
specified agreement, contract, or transaction performs a significant
price discovery function and to receive written data, views, and
arguments relevant to its determination from the ECM and other
interested persons.\5\ After prompt consideration of all relevant
information,\6\ the Commission will, within a reasonable period of time
after the close of the comment period, issue an order explaining its
determination. Following the issuance of an order by the Commission
that the ECM executes or trades an agreement, contract, or transaction
that performs a significant price discovery function, the ECM must
demonstrate, with respect to that agreement, contract, or transaction,
compliance with the core principles under section 2(h)(7)(C) of the CEA
\7\ and the applicable provisions of Part 36. If the Commission's order
represents the first time it has determined that one of the ECM's
contracts performs a significant price discovery function, the ECM must
submit a written demonstration of its compliance with the core
principles within 90 calendar days of the date of the Commission's
order. For each subsequent determination by the Commission that the ECM
has an additional SPDC, the ECM must submit a written demonstration of
its compliance with the core principles within 30 calendar days of the
Commission's order.
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\5\ The Commission may commence this process on its own
initiative or on the basis of information provided to it by an ECM
pursuant to the notification provisions of Commission rule
36.3(c)(2).
\6\ Where appropriate, the Commission may choose to interview
market participants regarding their impressions of a particular
contract. Further, while they may not provide direct evidentiary
support with respect to a particular contract, the Commission may
rely for background and context on resources such as its October
2007 Report on the Oversight of Trading on Regulated Futures
Exchanges and Exempt Commercial Markets (``ECM Study''). http://
www.cftc.gov/stellent/groups/public/@newsroom/documents/file/pr5403-
07_ecmreport.pdf.
\7\ 7 U.S.C. 2(h)(7)(C).
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B. PJM WH Real Time Peak Daily Contract
The PDP contract is a daily contract that is cash settled based on
the arithmetic average of hourly, real-time LMPs during the specified
calendar day for the Western Hub, which are published by the PJM
Interconnection for all peak hours during a particular date of
production. The LMPs are published by PJM Interconnection on its Web
site under the heading, ``Daily Real-Time LMP Files.'' The LMPs are
derived from power trades that result in physical delivery. The size of
the PDP contract is 800 megawatt hours (``MWh''), and the unit of
trading is any multiple of 800 MWh. The PDP contract is listed for up
to 38 consecutive calendar days. Based upon a required quarterly
notification filed on July 27, 2009 (mandatory under Rule 36.3(c)(2)),
the ICE reported that, with respect to its PDP contract, 48,072
separate trades occurred in the second quarter of 2009, resulting in a
daily average of 751.1 trades. During the same period, the PDP contract
had a total trading volume of 68,586 contracts (which was an average of
1,071.7 contracts per day). As of June 30, 2009, open interest in the
PDP contract was 1,856 contracts. It appears that the ICE PDP contract
may satisfy the material liquidity and material price reference factors
for SPDC determination. With respect to material liquidity, trading in
the PDP contract averaged over 1,000 contracts on a daily basis with
more than 750 separate transactions each day. In regard to material
price reference, while it did not specifically address the power
contracts under review, the ECM Study stated that, in general, market
participants view the ICE as a price discovery market for certain
electricity contracts. Power contracts based on actively-traded hubs
are transacted heavily on the ICE's electronic trading platform, with
the remainder being completed over-the-counter and potentially
submitted for clearing by voice brokers. In addition, the ICE sells its
price data to market participants in a number of different packages
which vary in terms of the hubs covered, time periods, and whether the
data are daily only or historical. For example, the ICE offers ``PJM
Power End of Day'' and ``OTC Power End of Day'' data packages with
access to all price data or just 12, 24, 36, or 48 months of historical
data.
C. PJM WH Real Time Peak Contract
The PJM contract is a monthly contract that is cash settled based
on the arithmetic average of hourly, real-time LMPs during the
specified calendar
[[Page 54968]]
month for the Western Hub, which are published by the PJM
Interconnection for all peak hours during the month of production. The
LMPs are published by PJM Interconnection on its Web site under the
heading, ``Daily Real-Time LMP Files.'' The LMPs are derived from power
trades that result in physical delivery. The size of the PJM contract
is 800 MWh, and the unit of trading is the contract size multiplied by
the number of peak days in the calendar month. The PJM contract is
listed for up to 110 consecutive calendar months.
Based upon a required quarterly notification filed on July 27, 2009
(mandatory under Rule 36.3(c)(2)), the ICE reported that, with respect
to its PJM contract, 7,990 separate trades occurred in the second
quarter of 2009, resulting in a daily average of 124.8 trades. During
the same period, the PJM contract had a total trading volume of 268,489
(which was an average of 4,195.1 contracts per day). As of June 30,
2009, open interest in the PJM contract was 318,788 contracts.
It appears that the ICE PJM contract may satisfy the material
liquidity and material price reference factors for SPDC determination.
With respect to material liquidity, trading in the PJM contract
averaged 4,200 contracts on a daily basis with more than 120 separate
transactions each day. In addition, the open interest in the subject
contract was significant. In regard to material price reference, while
it did not specifically address the power contracts under review, the
ECM Study stated that, in general, market participants view the ICE as
a price discovery market for certain electricity contracts. Power
contracts based on actively-traded hubs are transacted heavily on the
ICE's electronic trading platform, with the remainder being completed
over-the-counter and potentially submitted for clearing by voice
brokers. In addition, the ICE sells its price data to market
participants in a number of different packages which vary in terms of
the hubs covered, time periods, and whether the data are daily only or
historical. For example, the ICE offers ``PJM Power End of Day'' and
``OTC Power End of Day'' data packages with access to all price data or
just 12, 24, 36, or 48 months of historical data.
D. PJM WH Real-Time Off-Peak Contract
The OPJ contract is a monthly contract that is cash settled based
on the arithmetic average of hourly, real-time LMPs during the
specified calendar month for the Western Hub, which are published by
the PJM Interconnection for all off-peak hours during the month of
production. The LMPs are published by PJM Interconnection on its Web
site under the heading, ``Daily Real-Time LMP Files.'' The LMPs are
derived from power trades that result in physical delivery. The size of
the OPJ contract is 50 MWh, and the unit of trading is determined by
multiplying the contract size by the number of off-peak days in the
calendar month traded. The OPJ contract is listed for up to 86 calendar
months with four complete calendar years. Based upon a required
quarterly notification filed on July 27, 2009 (mandatory under Rule
36.3(c)(2)), the ICE reported that, with respect to its OPJ contract,
437 separate trades occurred in the second quarter of 2009, resulting
in a daily average of 6.8 trades. During the same period, the OPJ
contract had a total trading volume of 325,799 contracts (which was an
average of 5,090.6 contracts per day). As of June 30, 2009, open
interest in the OPJ contract was 2,976,492 contracts.
It appears that the ICE OPJ contract may satisfy the material
liquidity and material price reference factors for SPDC determination.
With respect to material liquidity, trading in the OPJ contract
averaged over 5,000 contracts on a daily basis with more than six
separate transactions each day. In addition, the open interest in the
subject contract was extremely large. In regard to material price
reference, while it did not specifically address the power contracts
under review, the ECM Study stated that, in general, market
participants view the ICE as a price discovery market for certain
electricity contracts. Power contracts based on actively-traded hubs
are transacted heavily on the ICE's electronic trading platform, with
the remainder being completed over-the-counter and potentially
submitted for clearing by voice brokers. In addition, the ICE sells its
price data to market participants in a number of different packages
which vary in terms of the hubs covered, time periods, and whether the
data are daily only or historical. For example, the ICE offers ``PJM
Power End of Day'' and ``OTC Power End of Day'' data packages with
access to all price data or just 12, 24, 36, or 48 months of historical
data.
E. PJM WH Day-Ahead LMP Peak Daily Contract
The PDA contract is a daily contract that is cash settled based on
the arithmetic average of hourly, day-ahead LMPs during the specified
day for the Western Hub, which are published by the PJM Interconnection
for all peak hours during a particular date of production. The LMPs are
published by PJM Interconnection on its Web site under the heading,
``Day-Ahead LMP Data.'' The LMPs are derived from power trades that
result in physical delivery. The size of the PDA contract is 800 MWh.
The PDA contract is listed for up to 38 consecutive calendar days.
Based upon a required quarterly notification filed on July 27, 2009
(mandatory under Rule 36.3(c)(2)), the ICE reported that, with respect
to its PDA contract, 1,063 separate trades occurred in the second
quarter of 2009, resulting in a daily average of 16.6 trades. During
the same period, the PDA contract had a total trading volume of 1,435
contracts (which was an average of 22.4 contracts per day). As of June
30, 2009, open interest in the PDA contract was 75 contracts.
It appears that the ICE PDA contract may satisfy the material
liquidity and material price reference factors for SPDC determination.
With respect to material liquidity, trading in the PDA contract
averaged over 20 contracts on a daily basis with more than 15 separate
transactions each day. In regard to material price reference, while it
did not specifically address the power contracts under review, the ECM
Study stated that, in general, market participants view the ICE as a
price discovery market for certain electricity contracts. Power
contracts based on actively-traded hubs are transacted heavily on the
ICE's electronic trading platform, with the remainder being completed
over-the-counter and potentially submitted for clearing by voice
brokers. In addition, the ICE sells its price data to market
participants in a number of different packages which vary in terms of
the hubs covered, time periods, and whether the data are daily only or
historical. For example, the ICE offers ``PJM Power End of Day'' and
``OTC Power End of Day'' data packages with access to all price data or
just 12, 24, 36, or 48 months of historical data.
F. PJM WH Real-Time Off-Peak Daily Contract
The ODP contract is a daily contract that is cash settled based on
the arithmetic average of hourly, real-time LMPs during the specified
calendar day for the Western Hub, which are published by the PJM
Interconnection for all off-peak hours during the particular date of
production. The LMPs are published by PJM Interconnection on its Web
site under the heading, ``Daily Real-Time LMP Files.'' The LMPs are
derived from power trades that result in physical delivery. The size of
the ODP contract is 50 MWh, and the unit of trading is any multiple of
50 MWh. The ODP contract is listed for up to 38 consecutive calendar
days. Based upon a required quarterly notification
[[Page 54969]]
filed on July 27, 2009 (mandatory under Rule 36.3(c)(2)), the ICE
reported that, with respect to its ODP contract, 723 separate trades
occurred in the second quarter of 2009, resulting in a daily average of
11.3 trades. During the same period, the ODP contract had a total
trading volume of 7,448 contracts (which was an average of 116.4
contracts per day). As of June 30, 2009, open interest in the ODP
contract was 256 contracts.
It appears that the ICE ODP contract may satisfy the material
liquidity and material price reference factors for SPDC determination.
With respect to material liquidity, trading in the ODP contract
averaged over 110 contracts on a daily basis with more than 10 separate
transactions each day. In regard to material price reference, while it
did not specifically address the power contracts under review, the ECM
Study stated that, in general, market participants view the ICE as a
price discovery market for certain electricity contracts. Power
contracts based on actively-traded hubs are transacted heavily on the
ICE's electronic trading platform, with the remainder being completed
over-the-counter and potentially submitted for clearing by voice
brokers. In addition, the ICE sells its price data to market
participants in a number of different packages which vary in terms of
the hubs covered, time periods, and whether the data are daily only or
historical. For example, the ICE offers ``PJM Power End of Day'' and
``OTC Power End of Day'' data packages with access to all price data or
just 12, 24, 36, or 48 months of historical data.
III. Request for Comment
In evaluating whether an ECM's agreement, contract, or transaction
performs a significant price discovery function, section 2(h)(7) of the
CEA directs the Commission to consider, as appropriate, four specific
criteria: Price linkage, arbitrage, material price reference, and
material liquidity. As it explained in Appendix A to the Part 36
rules,\8\ the Commission, in making SPDC determinations, will apply and
weigh each factor, as appropriate, to the specific contract and
circumstances under consideration.
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\8\ 17 CFR 36, Appendix A.
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As part of its evaluation, the Commission will consider the written
data, views, and arguments from any ECM that lists the potential SPDC
and from any other interested parties. Accordingly, the Commission
requests comment on whether the PDP, PJM, OPJ, PDA, and/or ODP
contracts perform significant price discovery functions. Commenters'
attention is directed particularly to Appendix A of the Commission's
Part 36 rules for a detailed discussion of the factors relevant to a
SPDC determination. The Commission notes that comments which analyze
the contracts in terms of these factors will be especially helpful to
the determination process. In order to determine the relevance of
comments received, the Commission requests that commenters explain in
what capacity are they knowledgeable about the subject contracts.
Moreover, because five contracts are included in this notice, it is
important that commenters identify to which contract(s) their comments
apply.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \9\ imposes certain
requirements on federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA. Certain provisions of final
Commission rule 36.3 impose new regulatory and reporting requirements
on ECMs, resulting in information collection requirements within the
meaning of the PRA; OMB previously has approved and assigned OMB
control number 3038-0060 to this collection of information.
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\9\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis
Section 15(a) of the CEA \10\ requires the Commission to consider
the costs and benefits of its actions before issuing an order under the
Act. By its terms, section 15(a) does not require the Commission to
quantify the costs and benefits of an order or to determine whether the
benefits of the order outweigh its costs; rather, it requires that the
Commission ``consider'' the costs and benefits of its action. Section
15(a) further specifies that the costs and benefits shall be evaluated
in light of five broad areas of market and public concern: (1)
Protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations.
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\10\ 7 U.S.C. 19(a).
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The bulk of the costs imposed by the requirements of Commission
Rule 36.3 relate to significant and increased information-submission
and reporting requirements adopted in response to the Reauthorization
Act's directive that the Commission take an active role in determining
whether contracts listed by ECMs qualify as SPDCs. The enhanced
requirements for ECMs will permit the Commission to acquire the
information it needs to discharge its newly mandated responsibilities
and to ensure that ECMs with SPDCs are identified as entities with the
elevated status of registered entity under the CEA and are in
compliance with the statutory terms of the core principles of section
2(h)(7)(C) of the Act. The primary benefit to the public is to enable
the Commission to discharge its statutory obligation to monitor for the
presence of SPDCs and extend its oversight to the trading of SPDCs.
Issued in Washington, DC on October 14, 2009 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-25238 Filed 10-23-09; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: October 26, 2009