Wednesday, August 17, 2022

Court Rules to Not Limit Speculation in Markets

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WASHINGTON (Dow Jones) — A district court vacated a new rule designed to limit speculation in commodity markets, in a loss for regulators and the 2010 Dodd-Frank financial overhaul law.

The U.S. District Court for the District of Columbia sent the rule back to the Commodity Futures Trading Commission, ruling that the Dodd-Frank statute is ambiguous as to whether the limits were mandatory and regulators didn't properly justify the imposition of the limits.

“The Dodd-Frank amendments do not constitute a clear and unambiguous mandate to set position limits, as the Commission argues,” U.S. District Judge Robert Wilkins said in his decision.

Judge Wilkins ruled in favor of the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association, the trade groups that filed joint lawsuits in December against the CFTC seeking to throw out the rule.

The CFTC passed the so-called position-limits rule in October 2011 in a 3-2 vote along party lines. The debate leading up to the vote showed how even some commissioners supporting the rule thought it might not be effective. The new limits have long been a target of trade groups and the futures industry, and the agency's proposed rule prompted about 15,000 comment letters.

The rule aims to cap the positions firms can take in certain commodity contracts in order to curb sharp price increases. It gained traction in Congress during an oil-price spike in 2008, which some attributed to excessive speculation by short-term traders.

Eugene Scalia, a partner at Gibson, Dunn & Crutcher, argued the case for the trade groups. Mr. Scalia has successfully challenged regulators on behalf of trade groups before. The firm represented the U.S. Chamber of Commerce and the Business Roundtable in their successful suit against the Securities and Exchange Commission over a new rule that would have allowed investors to more easily oust corporate directors. The rule was overturned by the court, and the SEC decided not to appeal the decision.

The CFTC, ISDA and Sifma didn't immediately return requests for comment.

Source:  Dow Jones

Posted by Haylie Shipp

 

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