FR Doc E9-23965[Federal Register: October 6, 2009 (Volume 74, Number 192)]
[Notices]
[Page 51264-51268]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc09-30]
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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 SP-15 Financial Day-Ahead LMP Peak
Contract; SP-15 Financial Day-Ahead LMP Peak Daily Contract; SP-15
Financial Day-Ahead LMP Off-Peak Daily Contract; SP-15 Financial Swap
Real Time LMP--Peak Daily Contract; SP-15 Financial Day-Ahead LMP Off-
Peak Contract; NP-15 Financial Day-Ahead LMP Peak Daily Contract; and
NP-15 Financial Day-Ahead LMP 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 SP-15
Financial Day-Ahead LMP \1\ Peak (``SPM'') contract; SP-15 Financial
Day-Ahead LMP Peak Daily (``SDP'') contract; SP-15 Financial Day-Ahead
LMP Off-Peak Daily (``SQP'') contract; SP-15 Financial Swap Real Time
LMP--Peak Daily (``SRP'') contract; SP-15 Financial Day-Ahead LMP Off-
Peak Contract (``OFP''); NP-15 Financial Day-Ahead LMP Peak Daily
(``DPN'') contract; and NP-15 Financial Day-Ahead LMP Off-Peak Daily
(``UNP'') 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)
[[Page 51265]]
promulgated thereunder. In connection with this evaluation, the
Commission invites comment from interested parties.
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\1\ The term LMP represents ``locational marginal price,'' which
represents the additional cost associated with producing an
incremental amount of electricity. LMPs account for generation
costs, congestion along the transmission lines, and loss.
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DATES: Comments must be received on or before October 21, 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 ICE SP-15 Financial
Day-Ahead LMP Peak (SPM) Contract; ICE SP-15 Financial Day-Ahead LMP
Peak Daily (SDP) Contract; ICE SP-15 Financial Day-Ahead LMP Off-Peak
Daily (SQP) Contract; ICE SP-15 Financial Swap Real Time LMP--Peak
Daily (SRP) Contract; ICE SP-15 Financial Day-Ahead LMP Off-Peak (OFP)
Contract; ICE NP-15 Financial Day-Ahead LMP Peak Daily (DPN) Contract;
and/or ICE NP-15 Financial Day-Ahead LMP Off-Peak Daily (UNP) 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 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'') \2\ 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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\2\ 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 an 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 an 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.\3\ After prompt consideration of all relevant
information,\4\ 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
\5\ 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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\3\ 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).
\4\ 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.
\5\ 7 U.S.C. 2(h)(7)(C).
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B. SP-15 Financial Day-Ahead LMP Peak Contract
The SPM contract is cash settled based on the arithmetic average of
peak-hour, day-ahead LMPs posted by the California ISO \6\ (CAISO) for
the SP-15 Existing Zone Generation (EZ Gen) Hub for all peak hours in
the calendar month. The LMPs are derived from power trades that result
in physical delivery. The size of the SPM contract is 400 megawatt
hours (``MWh''), and the unit of trading is the number of peak days in
the contract month multiplied by 400 MWh (one 400-MWh increment is
referred to as a lot). In other words, a minimum of 400 MWh must be
delivered each peak day of the month, and trading is restricted to
multiples of the number of peak days in the contract month. The SPM
contract is listed for up to 110 months including four entire calendar
years.
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\6\ The acronym ``ISO'' signifies ``Independent System
Operator,'' which is an entity that coordinates electricity
generation and transmission, as well as the grid reliability,
throughout its service area.
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Based upon a required quarterly notification filed on July 27, 2009
(mandatory under Rule 36.3(c)(2)), the
[[Page 51266]]
ICE reported that, with respect to its SPM contract, 3,235 separate
transactions occurred in the second quarter of 2009, resulting in a
daily average of 50.5 trades. During the same period, the SPM contract
had a total trading volume of 143,717 contracts, and an average daily
trading volume of 2,245.6 contracts. Moreover, the open interest in the
contract as of June 30, 2009, was 460,583 contracts.
It appears that the SPM contract may satisfy the material liquidity
and material price reference factors for SPDC determination. With
respect to material liquidity, trading in the SPM contract averaged
more than 2,000 contracts on a daily basis, with approximately 50
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. Specifically, power contracts based on actively-
traded hubs are transacted heavily on the ICE's electronic trading
platform, with the remainder being traded over-the-counter through
voice brokers and potentially submitted for clearing. 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 ``West Power End of Day'' data packages with
access to all price data or just 12, 24, 36, or 48 months of historical
data.
C. SP-15 Financial Day-Ahead LMP Peak Daily Contract
The SDP contract is cash settled based on the arithmetic average of
peak-hour, day-ahead LMPs posted by the CAISO for the SP-15 EZ Gen Hub
for all peak hours on the day prior to generation. The LMPs are derived
from power trades that result in physical delivery. The size of the SDP
contract is 400 MWh. The SDP contract is listed for 45 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 SDP contract, 6,159 separate transactions occurred in the second
quarter of 2009, resulting in a daily average of 96.2 trades. During
the same period, the SDP contract had a total trading volume of 23,365
contracts and an average trading volume of 365.1 contracts per day.
Moreover, the open interest in the contract as of June 30, 2009, was
3,387 contracts.
It appears that the SDP contract may satisfy the material liquidity
and material price reference factors for SPDC determination. With
respect to material liquidity, trading in the ICE SDP contract averaged
more than 350 contracts on a daily basis, with more than 95 separate
transactions each day. In addition, the open interest in the subject
contract was 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. Specifically,
power contracts based on actively-traded hubs are transacted heavily on
the ICE's electronic trading platform, with the remainder being traded
over-the-counter through voice brokers and potentially submitted for
clearing. 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 ``West Power End of Day'' data
packages with access to all price data or just 12, 24, 36, or 48 months
of historical data.
D. SP-15 Financial Swap Real Time LMP--Peak Daily
The SRP contract is cash settled based on the arithmetic average of
hourly, real-time LMPs posted by the CAISO for the SP-15 EZ Gen Hub for
all peak hours in the day of the electricity generation. The LMPs are
derived from power trades that result in physical delivery. The size of
the SRP contract is 400 MWh, and the unit of trading is any multiple of
400 MWh. The SRP contract is listed for 45 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 SRP contract, 826 separate transactions occurred in the second
quarter of 2009, resulting in a daily average of 12.9 trades. During
the same period, the SRP contract had a total trading volume of 1,014
contracts and an average trading volume of 15.8 contracts per day.
Moreover, the open interest in the contract as of June 30, 2009, was
143 contracts.
It appears that the SRP contract may satisfy the material liquidity
and material price reference factors for SPDC determination. With
respect to material liquidity, trading in the ICE SRP contract averaged
more than 15 contracts on a daily basis, with more than 12 separate
transactions each day. In addition, the open interest in the subject
contract was substantial. 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.
Specifically, power contracts based on actively-traded hubs are
transacted heavily on the ICE's electronic trading platform, with the
remainder being traded over-the-counter through voice brokers and
potentially submitted for clearing. 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 ``West
Power End of Day'' data packages with access to all price data or just
12, 24, 36, or 48 months of historical data.
E. SP-15 Financial Day-Ahead LMP Off-Peak Contract
The OFP contract is cash settled based on the arithmetic average of
off-peak-hour, day-ahead LMPs posted by the CAISO for the SP-15
Existing Zone Generation (EZ Gen) Hub for all off-peak hours in the
calendar month. The LMPs are derived from power trades that result in
physical delivery. The size of the OFP contract is 25 megawatt hours
(``MWh''), and the unit of trading is any multiple of 25 MWh. That is,
a minimum of 25 MWh must be delivered each off-peak day of the month,
and trading is restricted to multiples of the number of off-peak days
in the contract month. The OFP contract is listed for up to 86 months
including three entire calendar years.
Based upon a required quarterly notification filed on April 30,
2009 (mandatory under Rule 36.3(c)(2)), the ICE reported that its OFP
contract met the minimum five trades or more per day threshold in the
first quarter of 2009. During that period, the OFP contract had a total
trading volume of 1,159,586 contracts and the open interest as of March
31, 2009, was 3,259 contracts.
It appears that the ICE OFP contract may satisfy the material
liquidity and material price reference factors for SPDC determination.
With respect to material liquidity, the OFP contract met the minimum
trading threshold with a total trading volume of over one million
contracts in the first quarter of 2009. In addition, the ending open
interest was sizeable. In regard to material price reference, while it
did not specifically
[[Page 51267]]
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. Specifically, power contracts based
on actively-traded hubs are transacted heavily on the ICE's electronic
trading platform, with the remainder being traded over-the-counter
through voice brokers and potentially submitted for clearing. 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 ``West Power End of Day'' data packages with
access to all price data or just 12, 24, 36, or 48 months of historical
data.
F. NP-15 Financial Day-Ahead LMP Peak Daily Contract
The DPN contract is cash settled based on the arithmetic average of
the peak-hour, day-ahead LMPs posted by the CAISO for the NP-15 EZ Gen
Hub for peak hours on the day prior to generation. The LMPs are derived
from power trades that result in physical delivery. The size of the DPN
contract is 400 MWh. The DPN contract is listed for 45 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 DPN contract, 2,782 separate transactions occurred in the second
quarter of 2009, resulting in a daily average of 43.5 trades. During
the same period, the DPN contract had a total trading volume of 5,766
contracts and an average trading volume of 90.1 contracts per day.
Moreover, the open interest in the contract as of June 30, 2009, was
947 contracts.
It appears that the DPN contract may satisfy the material liquidity
and material price reference factors for SPDC determination. With
respect to material liquidity, trading in the ICE DPN contract averaged
approximately 90 contracts on a daily basis, with more than 40 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.
Specifically, power contracts based on actively-traded hubs are
transacted heavily on the ICE's electronic trading platform, with the
remainder being traded over-the-counter through voice brokers and
potentially submitted for clearing. 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 ``West
Power End of Day'' data packages with access to all price data or just
12, 24, 36, or 48 months of historical data.
G. NP-15 Financial Day-Ahead LMP Off-Peak Daily Contract
The UNP contract is cash settled based on the arithmetic average of
the off-peak-hour, day-ahead LMPs posted by the CAISO for the NP-15 EZ
Gen Hub for off-peak hours on the day prior to generation. The LMPs are
derived from power trades that result in physical delivery. The size of
the UNP contract is 25 MWh. The UNP contract is listed for 45
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 UNP contract, 1,925 separate transactions occurred in the second
quarter of 2009, resulting in a daily average of 30.1 trades. During
the same period, the UNP contract had a total trading volume of 36,936
contracts and an average trading volume of 577.1 contracts per day.
Moreover, the open interest in the contract as of June 30, 2009, was
4,152 contracts.
It appears that the UNP contract may satisfy the material liquidity
and material price reference factors for SPDC determination. With
respect to material liquidity, trading in the ICE UNP contract averaged
more than 575 contracts on a daily basis, with more than 30 separate
transactions each day. In addition, the open interest in the subject
contract was 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. Specifically,
power contracts based on actively-traded hubs are transacted heavily on
the ICE's electronic trading platform, with the remainder being traded
over-the-counter through voice brokers and potentially submitted for
clearing. 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 ``West 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,
the Commission, in making SPDC determinations, will apply and weigh
each factor, as appropriate, to the specific contract and circumstances
under consideration.
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 subject 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 an 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, commenters are
requested to identify the contract or contracts to which their comments
apply.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \7\ 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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\7\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis
Section 15(a) of the CEA \8\ requires the Commission to consider
the costs and
[[Page 51268]]
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 such an order or to determine whether the
benefits of such an 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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\8\ 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 September 22, 2009 by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-23965 Filed 10-5-09; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: October 6, 2009