On January 2, 2014, the Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) entered into two Memoranda of Understanding (the MOUs) to set forth procedures to address circumstances of overlapping jurisdiction (the Jurisdiction MOU) and to share information in connection with market surveillance and investigations into potential market manipulation, fraud or abuse (the Information MOU).
The MOUs were entered into in response to a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that directed the FERC and CFTC to develop the MOUs. The directive in the Dodd-Frank Act was the result, in part, of jurisdictional disputes in recent years related to investigations that implicated the jurisdictions of both the FERC and the CFTC, particularly in cases dealing with the potential manipulation of the natural gas markets. Specifically, in Hunter v. FERC, No. 11-1477 (D.C. Cir. Mar. 15, 2013), the D.C. Circuit Court rejected FERC’s assertion of jurisdiction over the trading of natural gas futures contracts when the Court held that the CFTC has exclusive jurisdiction over all transactions involving futures (the underlying FERC case was filed prior to the passage of the Dodd-Frank Act). In addition to directing the FERC and CFTC to enter into the MOUs, the Dodd-Frank Act also clarified the jurisdiction of the respective agencies. The MOUs supersede a 2005 Memorandum of Understanding the agencies had been employing for the exchange of information related to oversight or investigations.
The Jurisdiction MOU sets out a process under which the FERC and CFTC will notify each other of activities that may involve overlapping jurisdiction and then directs them to work together to address each agency’s regulatory concerns. Notably, the Jurisdiction MOU sets forth a dispute resolution procedure that requires elevation to the respective Commissions when staff and Director-level personnel cannot resolve a dispute after a 25 working day time period.
The Information MOU sets forth procedures for sharing information related to market surveillance and investigations. Specifically, the Information MOU requires the FERC to request that the CFTC obtain information for a FERC investigation from designated contract markets and derivatives clearing organizations, as well as the newly created swap execution facilities and swap data repositories.
Notably, the MOUs were entered into on the eve of Chairman Gensler’s departure from the CFTC on January 3, 2014. Thereafter, Commissioner Mark Wetjen will become Acting Chair and will lead the three person Commission until the Senate confirms the nominations of Timothy Massad as Chairman, as well as the nominations of Christopher Giancarlo and Sharon Bowen as Commissioners, all recently named by President Obama to fill vacancies at the CFTC.