On October 18, 2016, the Commodity Futures Trading Commission (CFTC) approved a final order (Final Order) to exempt certain transactions executed by regional transmission organizations (RTOs) and independent system operators (ISOs) from private rights of action under the Commodity Exchange Act (CEA) and CFTC regulations. The Final Order retains the CFTC’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions.
The Final Order exempting RTOs and ISOs from private rights of action under the CEA doesn’t come as a surprise. In a September 13, 2016 letter to Senator John Boozman (D-AR), chairman of the Senate Appropriation Committee’s Subcommittee of Financial Services and General Government, CFTC Chairman Massad wrote that he will recommend that the CFTC issue a final order exempting RTOs and ISOs from all private rights of action under Section 22 of the CEA because “private rights of action could inadvertently introduce regulatory uncertainty and increased costs for consumers.”
Given that private rights of action do not exist under Federal Energy Regulatory Commission (FERC) anti-fraud and anti-manipulation authority, Chairman Massad’s decision eliminates regulatory uncertainty between CFTC and FERC authority and conforms to the CFTC’s 2014 Memorandum of Understanding on Overlapping Jurisdiction with FERC. Most importantly, consumers will not have to bear the expense of private litigation against RTOs, ISOs and other market participants that are well regulated by both FERC and the CFTC.
A full analysis of Chairman Massad’s decision and the history of potential private rights of action against RTOs and ISOs under the Dodd-Frank Act and CFTC Section 22 of the CEA is available here.
The CFTC’s Q&A on the Final Order is available here.