Bloomberg News

Wall Street Groups Seek Delay of CFTC Position Limits Rule

January 12, 2012

(Updates with excerpt from filing in third paragraph.)

Jan. 9 (Bloomberg) -- Two Wall Street groups asked a federal appeals court to delay a U.S. Commodity Futures Trading Commission rule that limits commodity speculation, saying the regulation is already imposing “irreversible harms.”

The International Swaps and Derivatives Association Inc. and Securities Industry and Financial Markets Association filed an emergency request today in Washington urging a three-judge panel to put the rule on hold while the court considers their legal challenge. The groups asked the court to issue a ruling by Jan. 27.

“The rule will force market participants to forgo efficient trading strategies, impair their ability to hedge against risks, and potentially require them to restructure their businesses,” the groups said in the filing. “These costs will mount now absent a stay, and they would be impossible to recoup if the rule is invalidated -- as it likely will be.”

The groups, in one of the financial industry’s highest- profile efforts to weaken last year’s Dodd-Frank law, filed lawsuits challenging the rule in two federal courts in Washington last month.

‘Flawed’ Analysis

They argue that the CFTC used a flawed analysis of Dodd- Frank when it decided to impose the restrictions. The associations also said the CFTC failed to properly weigh the rule’s costs and benefits.

In today’s filing with the U.S. Court of Appeals, the groups argue that their challenge will likely succeed, noting that a majority of commissioners concluded the rule was unnecessary and would have rejected it “but for one commissioner’s mistaken view that Congress required it.”

They said the rule will impose costs on the economy because some companies may not invest in other companies as a way of avoiding the aggregation requirements.

Steven Adamske, a CFTC spokesman, declined to comment on today’s filing.

The CFTC, on Jan. 4, asked the appeals court to dismiss the challenge claiming it doesn’t have jurisdiction to consider the lawsuit. The agency said that the district court must first consider a challenge to the rule.

Banks, Asset Managers

In response to questions from the district court judge, the groups said last month they didn’t oppose putting the district court case on hold while the appeals court considers the challenge.

The groups, in today’s filing, said the appeals court has jurisdiction to consider the case.

The two associations represent JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, among other banks and asset managers.

The rule is among the most controversial provisions of Dodd-Frank, and spurred more than 13,000 public comments to the CFTC from supporters including Delta Air Lines Inc. and opponents such as Barclays Capital. The agency voted 3-2 at an Oct. 18 meeting to approve the final regulation, with Jill E. Sommers and Scott O’Malia, both Republicans, voting in opposition.

The case is International Swaps and Derivatives Association v. CFTC, 11-01491, U.S. Court of Appeals for the District of Columbia (Washington).

--With assistance from Silla Brush in Washington. Editors: Mary Romano, Michael Hytha

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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