Interested Parties Submit Opposing Amicus Brief in ISDA v. CFTC Position Limits Case
Commentary by Bob Zwirb
Better Markets, Inc., on the one side, and a coalition involving the Edison Electric Institute, the Electric Power Supply Association and the CME Group, on the other, have filed opposing amicus briefs with the D.C. Court of Appeals in CFTC's appeal of a federal district court decision vacating its position limits rules issued under Dodd-Frank, ISDA v. CFTC, 887 F. Supp. 2d 259 (D.D.C. September 28, 2012). The Better Markets brief, which focuses on the cost-benefit requirement of CEA Section 15, argues that, although Section 15 requires the CFTC to "consider" the costs and benefits of proposed Commission rules, the CFTC "has no obligation to quantify costs or benefits, weigh them against each other, or find that a rule will confer a net benefit." Instead, according to Better Markets, the CFTC must give proper weight to the overriding objective of the Dodd-Frank reforms of preventing another financial crisis, which Better Markets argues the agency did, citing speeches promoting the "package of reforms" included in the Dodd-Frank Act by Chairman Gensler and a statement issued by Commissioner Bart Chilton, entitled "Huggy Bear and Position Limits."
The brief by the electric entities and the CME, which was prepared by Cadwalader and another law firm, focuses on the CEA's grant of rulemaking authority with respect to position limits, and argues that the "plain language" of the CEA authorizes the CFTC to impose position limits only after it has found that they are necessary to prevent excessive speculation, and only after designing the limits to minimize the negative impact on the derivatives markets. The brief maintains that the rule will increase the cost of hedging - "costs that the Commission did not adequately consider before imposing position limits on Reference Contracts - without producing corresponding benefits."
See: Better Markets Amicus Brief; EEI ESPA CME Amicus Brief; Better Markets Motion.
Related News: "ICI vs. CFTC (with Zwirb Comments)" (February 1, 2013); "CFTC's Appeal Brief on Position Limits Litigation (with Zwirb Comment)" (April 9, 2013); "Commodity Markets Oversight Coalition Amicus Brief Sides with CFTC in ISDA v. CFTC (with Zwirb Comment and Lofchie Comment)" (April 23, 2013); and "Senate Democrats' Amicus Brief Sides with CFTC in ISDA v. CFTC (with Zwirb Comment and Lofchie Comment)" (April 24, 2013).
Commentary
The two briefs take starkly opposing views of the CFTC's obligations here. Better Markets focuses on the issue of cost/benefit analysis. The CME/electric entities focus on the statutory language authorizing the CFTC to issue position limit rules in the first place.
Better Markets appears to use its brief as a vehicle to strike a knockout punch on the role of cost-benefit analysis in agency rulemaking, arguing that the court's concern, like that of Congress, should be on regulation's role in "protecting the public," not "the inevitable costs of regulation to the industry." It finds it "inconceivable" that implementation of Dodd-Frank reforms would hinge on "rule-by-rule cost-benefit analyses that subordinate the purpose of the new regulatory framework and give controlling weight to cost concerns from the very industry responsible for the crisis." Whatever one may think of this standard offered by Better Markets, it is clear that it also offers a rather low bar for satisfying it. In addition to the speeches by Chairman Gensler and Chilton noted above, Better Markets cites conclusory statements by the CFTC regarding the benefits of its rule - e.g., that the narrower bona fide hedge exemption "will not negatively affect the competitiveness or efficiency of the markets" - as proof that the agency fulfilled its CEA Section 15 mandate.
The CME/electric entities brief, by contrast, addresses a central argument advanced by the CFTC and its amici allies - that, because the CEA, as amended by Dodd-Frank, mandated that the CFTC impose position limits, other considerations such as necessity or appropriateness or costs and benefits fall by the wayside. If the CFTC prevails in this line of argument, according to the brief, then position limits will be imposed "even though the Commission has not found such limits to be necessary and has not adequately supported the level of limits imposed."