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Clifford Chance

Clifford Chance

Briefings

U.S. Court Affirms Economic Realism and Rejects CFTC Bid to Expand the Offense of Price Manipulation

13 December 2018

In a sharply worded decision released last week, a New York federal court provided some much-needed clarity for commodities and derivatives market participants by making clear that the U.S. Commodity Futures Trading Commission ("CFTC") must show that a trader intends to create an artificial price in order to be guilty of attempting to manipulate or manipulating a commodity price and that an intent to merely influence the price is insufficient. The Court's decision, dismissing all of the CFTC's price manipulation related charges against DRW Investments, LLC and its CEO, has dealt the CFTC a serious blow in its attempt to expand the definition of what constitutes unlawful price manipulation. The decision is based on certain findings that likely have broad application for large traders whose market conduct influences price in centralized or bilateral commodities and derivatives markets. Finding that DRW believed that its bids were in line with market value and were placed with a desire to transact, the Court concluded that where a trading pattern is supported by a legitimate economic rationale, it cannot be the basis for liability under the CEA. Although this decision remains subject to possible appeal by the CFTC, it offers some much needed guidance, as we wrote about in July 2016.

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