District Judge Paul Friedman of the D.C. District Court issued a long-awaited opinion in the ongoing lawsuit filed by SIFMA, ISDA, and the Institute of International Bankers (the "Associations") against the CFTC Cross-Border Guidance. The Associations filed the lawsuit on December 4, 2013, seeking to vacate the CFTC Cross-Border Guidance on procedural and substantive grounds. The lawsuit alleged that the CFTC unlawfully circumvented the requirements of the Administrative Procedure Act and the CEA by portraying its regulations as "guidance."
Judge Friedman said the CFTC was well within its discretion" to proceed as it did through guidance, rather than rulemaking, and that the CFTC did not act "arbitrarily or capriciously" with respect to its refusal to address the scope of the Title VII Rules extraterritorial application within the Title VII Rules. The Court ruled that the Cross-Border Guidance "reads like a non-binding policy statement" that has no binding legal effect and that market participants are "free to ignore" it.
The Court did, however, agree with the Associations' that the CFTC failed to adequately consider the costs and benefits of some of the Title VII Rules, as required by CEA Section 19, rendering the CFTC's cost-benefit analyses for these Rules "arbitrary and capricious" under the APA.
Overall, the Court said that the majority of the Associations' claims failed because Congress had "clearly indicated" that the swaps provisions within Dodd-Frank Title VII, including rules prescribed by the CFTC, "apply extraterritorially whenever the jurisdictional nexus" is Section 2(i) is applied. The Court therefore: (i) dismissed the Associations' claims as to the Trade Execution Rule, (ii) granted summary judgment to the CFTC as to the Associations' claims regarding the Cross-Border Guidance and certain Title VII Rules, (iii) granted summary judgment to the Associations' as to the remaining Title VII Rules, and (iv) directed the CFTC to conduct adequate cost-benefit analysis for those remaining Title VII Rules.
See: SIFMA v. CFTC Amended Complaint; SIFMA Motion for Summary Judgment; SIFMA v. CFTC Civil Docket; CFTC Motion to Hold in Abeyance; SIFMA Motion for Expedited Consideration of Summary Judgment.
Related news: Market Participants File Lawsuit Challenging CFTC Cross-Border Guidance for Being a Rule Adopted in Violation of the APA (with Lofchie Comment) (December 4, 2013); CFTC Comparability Determinations for Six Jurisdictions and Related No-Action Letter (No-Action Letter 13-75) (with Lofchie Comment) (with Lofchie YouTube Selection) (December 20, 2013) CFTC Issues No-Action Relief for Dealers in Five Jurisdictions from Certain Entity-Level Internal Business Conduct Requirements (CFTC Letter 13-78) (with Lofchie Comment) (December 23, 2013); CFTC Publishes Comparability Determinations (Fed. Reg.) (December 27, 2013).