CFTC Commodity Position Limits Rules Vacated by DC District Court | Practical Law

CFTC Commodity Position Limits Rules Vacated by DC District Court | Practical Law

The US District Court for the District of Columbia issued a ruling vacating the CFTC's final Dodd-Frank commodity position limits rules.

CFTC Commodity Position Limits Rules Vacated by DC District Court

Practical Law Legal Update 5-521-6832 (Approx. 3 pages)

CFTC Commodity Position Limits Rules Vacated by DC District Court

by PLC Finance
Published on 04 Oct 2012 • USA (National/Federal)
The US District Court for the District of Columbia issued a ruling vacating the CFTC's final Dodd-Frank commodity position limits rules.
On September 28, 2012, the US District Court for the District of Columbia issued an opinion in ISDA v. CFTC vacating most of the CFTC's final position limit rules, which had been issued under the Dodd-Frank Act (see Legal Update, CFTC Approves Final Position Limits for Physical Commodity Futures and Swaps under Dodd-Frank). The final rules were struck down by the court with the exception of position limits for so-called "legacy" contracts, which have already been in existence and were upheld. As a result, with the exception of the legacy limits, the final position limits rules will not become effective on October 12, 2012 as scheduled, pending further remedial rulemaking by the CFTC.
In early December 2011, industry groups ISDA and SIFMA sued the CFTC over the final position limits rules, alleging that the CFTC:
  • Overreached its authority under the Dodd-Frank Act when it issued the rules. The groups asserted that there was no mandate for commodity position limits contained in Dodd-Frank. The groups also claimed that position limits would make it harder to hedge the risks that market participants take in providing physical commodities to the public which, in turn, would lead to higher prices for those commodities.
  • Did not satisfy certain basic requirements under Dodd-Frank before adopting the final position limits rules, including failure to conduct a cost-benefit analysis of the rules and satisfaction of the requirement that the rules be necessary and appropriate.
The court ruled that commodity position limits were not mandated under Title VII of Dodd-Frank and that the final CFTC commodity position limits rules were not properly established by the CFTC.
The court did not, however, strike down the CFTC's modifications to the so-called legacy position limits that are already in place (see Practice Note, Commodity Position Limits under Dodd-Frank: Spot-month Position Limits and Non-spot-month Position Limits). These position limits remain in effect as they currently exist for these contracts on the exchanges on which they are traded. The changes to legacy limits made by the final rules are effective as of October 12, 2012.
The CFTC has not yet disclosed how it intends to respond to the decision, if at all. If the CFTC does respond, it can:
  • Seek appellate review of the decision from the DC Circuit.
  • Propose revised position limits rules.
  • Propose the same or similar rules with revised analysis.