The Commodity Futures Trading Commission (CFTC) Monday would not say whether it plans to appeal the appellate court decision tossing out the agency’s rule on limiting speculative trading, but some in industry are keeping their fingers crossed that the CFTC will take another route: start all over again on the rule.
“It wouldn’t surprise me [if the CFTC appealed it]. The rule is important to Chairman [Gary Gensler] and [Commissioner Bart] Chilton, but I hope they go back to the drawing board” on position limits, said a gas industry participant in the Dodd-Frank Wall Street Reform rulemaking process at the Commission.
The rule, which the CFTC passed last October, established limits to curb “excessive speculation” 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 Nymex New York Harbor Heating Oil (see Daily GPI, Oct. 19, 2011).
“The evidence of excessive speculation [in these markets] was not conclusive,” the gas industry participant said. “I think it [the court ruling is] a serious blow to the CFTC’s Dodd-Frank implementation and I hope it brings them to the table” to discuss more of the issues. “There are multiple issues. Position limits is one of eight focus areas for us.”
Last Friday the U.S. Court of Appeals for the District Circuit vacated and remanded the CFTC’s rule aimed at limiting speculative trading in the swaps market (see Daily GPI, Oct. 1). Judge Robert Wilkins ruled that “the precise question…is whether the language of Section 6a(a)(1) [of Dodd-Frank] clearly and unambiguously requires the Commission to make a finding of necessity [excessive speculation] prior to imposing position limits. The answer is yes.”
Gensler at the time said he was disappointed with the ruling and that the agency was “considering ways to proceed.”
The International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association challenged the CFTC’s position limit rule in court in December, arguing 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 arguments echoed those of the two Republicans on the CFTC: Commissioners Scott O’Malia and Jill Sommers.
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