An alliance of organizations that represents commodity-dependent industries, businesses and end-users has asked a federal court in Washington, DC, to reverse an earlier decision tossing out the Commodity Futures Trading Commission’s (CFTC) controversial rule limiting excessive speculation in the multi-trillion swaps market.
The request follows up on the CFTC’s request to overturn the court’s decision. “By focusing on individual words and phrases in isolation, the District Court lost sight of the big picture,” the agency contended.
Last fall, U.S. District Judge Robert Wilkins vacated the position limit rule and remanded it to the CFTC, saying that it was necessary for the agency to make a finding of excessive speculation prior to imposing position limits (see Daily GPI, Oct. 1, 2012).
“As part of the Dodd-Frank Act passed in the aftermath of the  financial crisis, Congress required the CFTC to impose position limits within a short time frame, either 180 or 270 days depending on the commodity,” said the Commodity Markets Oversight Coalition (CMOC), which included the Industrial Energy Consumers of America, in an amicus brief.
“The District Court’s opinion guts these swift action requirements and maintains the status quo. As a result, excessive speculation has been allowed to continue unabated.” CMOC also includes the American Public Gas Association, the New England Fuel Institute and the Public Gas Authority of Georgia.
Several Democratic senators appeared as amici of the CFTC, including Sens. Ron Wyden (OR), Dianne Feinstein (CA), Barbara Boxer (CA), Maria Cantwell (WA), and Mark Begich (D-AK).
According to the court’s opinion last fall, Dodd-Frank could be interpreted two different ways. CFTC’s interpretation is that it has a mandate for swift action to levy limits on excessive speculation. However, appellees (International Swaps and Derivatives Association, Securities Industry and Financial Markets Association) contend that the CFTC must first gather evidence to prove that excessive speculation exists.
The district court found that both interpretations were plausible, meaning that the statute was ambiguous as to congressional intent.
“But when properly viewed through the lens of the 2008 financial crisis and the long history of congressional interest in excessive speculation, it is clear that the CFTC’s interpretation was compelled by Congress and that the appellees’ interpretation was implausible,” said CMOC.
The International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association challenged the rule in court in December 2011, 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 two associations contend that the position limits rule may harm commodities markets and market participants, including end-users, by reducing liquidity and increasing price volatility.
In mid-October 2011 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).
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