The Commodity Futures Trading Commission (CFTC) has narrowly rejected a request by two trade groups to delay implementation of the rule imposing position limits to curb speculation in the $300 trillion derivatives market.

The groups, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, filed the request at the Commission in early December (see Daily GPI, Dec. 6, 2011).

At about the same time, the two groups challenged the position limit rule in both the U.S. District Court for the District of Columbia and the U.S. Court of Appeals for the District of Columbia Circuit..

In a petition in the district court, 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. The arguments echoed those of the two Republicans on the CFTC, Commissioners Scott O’Malia and Jill Sommers.

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

In mid-October the Commission narrowly voted out the rule seeking to prevent excessive speculation in commodity futures contracts and economically equivalent swaps (see Daily GPI, Oct. 19, 2011). Because of the controversial nature of the rule, a court challenge was expected.

With O’Malia and Sommers dissenting, the rule cleared the Commission by a vote of 3-2. It establishes 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 Nymex New York Harbor Heating Oil.

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