CFTC's Appeal Brief on Position Limits Litigation
Commentary by Bob Zwirb
The CFTC has submitted its brief to the U.S. Court of Appeals for the District of Columbia in its appeal of the position limits case. Last September, the U.S. District Court for the District of Columbia upheld the challenge of ISDA and SIFMA to the CFTC's position limit rules promulgated under Dodd-Frank, vacating the rules in their entirety on the ground that the CFTC had failed to make a finding that position limits were in the public interest prior to imposing them. ISDA v. CFTC, 887 F. Supp. 2d 259 (D.D.C. Sep. 28, 2012) (ruling that CFTC had no "clear and unambiguous mandate" to set position limits under the Dodd-Frank Act).
The CFTC's appeal brief argues that the district court erred when it (i) held that CEA Section 4a(a)(1) requires the Commission to make a finding of necessity as a prerequisite to imposing position limits, and (ii) failed to defer to the CFTC's longstanding interpretation of Section 4a(a)(1), which according to the brief, allows the CFTC to impose limits "prophylactically," i.e., without finding that they are necessary to address excessive speculation in the market.
View Brief in full here (Cabinet link).
See also: CEA Section 4a (Excessive Speculation); andCEA Section 15(a)(Consideration of Costs and Benefits).
For a compilation of related news items, link to Current Topics - Position Limits.
Commentary
The CFTC's brief focuses on the district court's interpretation of CEA Section 4a(a)(1), which requires the CFTC "from time to time" to impose positions limits "as the Commission finds are necessary to diminish, eliminate, or prevent such burden." The CFTC argues that it need not make a finding of necessity, because Dodd-Frank "required" it to promulgate position limits rules by a certain deadline. In fact, in the adopting rule release, the CFTC took the view that it did not need even to review economic studies submitted by outside parties questioning whether position limits were effective or necessary (leaving aside the inconvenient but unmentioned fact that the agency's own economists failed to find a relationship between the price of oil and speculation other than an inverse one).
The brief faults the district court for narrowly interpreting CEA Section 4a and failing to look at the statute as a "harmonious whole." This is a difficult argument for the CFTC given the existence of CEA Section 15(a), which requires the CFTC to consider a proposed rule's costs and benefits before promulgating it. The failure of the CFTC to comply with Section 15(a) represents one of the grounds alleged by ISDA and SIFMA in their original complaint. Perhaps the omission on the part of the CFTC will not be decisive, given the district court's failure to address this issue in its decision, but the CFTC's failure to address it would seem to be problematic for the CFTC's position.