US oil market anti-manipulation rule takes effect

By Tom Doggett

WASHINGTON, Nov 3 (Reuters) - A U.S. Federal Trade Commission rule takes effect on Wednesday that will hit energy traders and companies with fines of up to $1 million a day if they manipulate the oil markets.

The FTC unveiled the rule back in August to go after fraud in oil markets that it said could cause widespread damage to the U.S. economy. The old fine was just $11,000.

"This new rule will allow us to crack down on fraud and manipulation that can drive up prices at the pump," FTC Chairman Jon Leibowitz said at the time. "We will police the oil markets -- and if we find companies that are manipulating the markets, we will go after them."

The rule prohibits fraud or deceit both in the cash, or physical, energy markets and on the regulated futures exchanges.

Violations include making false announcements of pricing or petroleum output, false data, and so-called "wash sales" where it appears there has been a sale or purchase of a commodity even though no ownership change has taken place.

Gerry Alexis, an antitrust attorney with the Perkins Coie law firm in Washington, said the rule may force oil companies to think twice about revealing their cash oil transactions to price reporting companies like Platts.

"That could of course be an unintended consequence of the rule," she said. "There will be less price transparency and somebody could have an even greater impact if they get in and report prices that are not correct."

Under the rule, the FTC will go after wrongdoers in the wholesale market and not at the retail level.