CFTC Position Limit Rule Vacated

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A federal judge on Friday afternoon vacated a new Commodity Futures Trading Commission rule setting limits on speculative trading, saying the agency did not have clear power to establish the limits without justifying them.

The CFTC rule, which was set to take effect Oct. 12, would have set speculative position limits for futures, options contracts and swaps tied to 28 physical commodities.

U.S. District Judge Robert Wilkins in Washington D.C. ruled that the 2010 Dodd-Frank Act was unclear as to whether the agency was ordered by Congress to cap the number of derivatives contracts a trader can hold in crude oil, natural gas and other commodities markets without first assessing whether the rule was necessary.

"The Dodd-Frank amendments do not constitute a clear and unambiguous mandate to set position limits, as the Commission argues," Judge Wilkins said in his 34-page ruling.

"Although the court does not foreclose the possibility that the CFTC could, in the exercise of its discretion, determine that it should impose position limits without a finding of necessity and appropriateness, it is not plain and clear that the statute requires this result," Judge Wilkins said.

The decision was a victory for the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association, which sued the CFTC, arguing it had never studied whether the regulation was "necessary and appropriate" or quantified implementation costs for the rule.

CFTC Chairman Gary Gensler, in a statement on the Commission’s website, expressed disappointment with the ruling and said the agency was considering how to proceed. "I believe it is critically important that these position limits be established as Congress required," Gensler said.

The court’s decision remanded the position limit rule to the CFTC so that it can "fill in the gaps and resolve the ambiguities", leaving room for the agency to rework the regulation as long as does more to assess whether it is justified. The CFTC could also appeal the ruling to a higher court.

 

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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