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CFTC Withdraws Court Appeal of Position Limits Rule

The Commodity Futures Trading Commission (CFTC) has voted to withdraw its appeal of a federal court decision that tossed the agency's controversial final rule aimed at limiting speculative trading in the swaps markets, clearing the way for a new draft.

In late September 2012, U.S. District Judge Robert Wilkins vacated the CFTC's final rule on speculative position limits, ruling that the Dodd-Frank Wall Street Reform Act required the agency to "unambiguously" make a finding of necessity before imposing position limits (see Daily GPI,Oct. 1, 2012). Shortly thereafter the Democratic majority on the Commission voted to appeal the court's decision (see Daily GPI,Nov. 19, 2012).

The agency's final rule established limits on speculative positions in 28 core physical commodity contracts, four of which are energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and New York Harbor Heating Oil (see Daily GPI,Oct. 19, 2011).

"The Commission should never have pursued an appeal in the first place," said Republican Commissioner Scott O'Malia. "The district court concluded that the Commission had failed to do its homework in drafting the rule. The clear lesson for the Commission, then, was that it needed to go back to the drawing board and propose a new rule with the proper statutory and empirical foundation.

"Instead the Commission chose to take a dual-track approach and doubled down on its no-justification-needed stance in the old rule while simultaneously drafting a new proposed rule," O'Malia noted.

CFTC Chairman Gary Gensler and Commissioner Bart Chilton, the agency's biggest proponents of speculative position limits, had no comment on the agency's decision not to appeal the court's ruling.

The district court ruling stems from a challenge by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association to the position limits rule in December 2011. The groups argued that the agency adopted the rule without first determining that there was excessive speculation in commodity and swaps markets and failed to conduct a meaningful cost-benefit analysis of the rule (see Daily GPI,Dec. 6, 2011).

The two associations contended that the position limits rule may harm commodities markets and market participants, including end-users, by reducing liquidity and increasing price volatility.

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