The Senate has passed by voice vote an amendment to the broad financial regulatory reform bill that would make it easier for the Commodity Futures Trading Commission (CFTC) to prove manipulation in commodity and derivatives markets.
The amendment, which was sponsored by Sen. Maria Cantwell (D-WA), would bring the CFTC’s burden of proof for market manipulation in line with the lesser standard used by the Securities and Exchange Commission (SEC) for more than 75 years.
Current law requires the CFTC to meet a higher standard in order to prove manipulation — it must prove “specific intent” to do harm on the part of the violator. In contrast, the SEC has only to reach the lower standard of “recklessness” to prove manipulation. Because of the higher legal hurdle for the CFTC, the agency has successfully prosecuted and won only one case of manipulation in the futures markets in its 35-year history. Cantwell’s amendment, which is based on a bill she proposed in 2009, would give the CFTC the same “reckless conduct” standard for manipulation (see Daily GPI, Sept. 18, 2009).
“For years the Commodity Futures Trading Commission has lacked the tools necessary to deter and fight manipulation,” Cantwell said after the Senate passed her amendment.
“With the Senate passing this measure unanimously, I believe we are well on our way to restoring accountability in our financial markets. This amendment will draw a bright line that will deter bad actors and if manipulation does happen in the future, there will be a price to be paid,” she said.
CFTC Commissioner Bart Chilton has long been a proponent of changing the standard. “I think we need to, at the CFTC, seriously consider changing our manipulation standard…The SEC has an easier legal hurdle to jump, and I think this may be a great opportunity to adjust our rules to be more in line with theirs,” he said in New York last September.
The existing “specific intent” standard “is a very difficult standard to reach. You’d have to have a pretty dumb individual to, for example, write in an e-mail that you specifically intend to manipulate prices. But that’s what our law currently requires,” he said.
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