Tuesday, April 24, 2012

Advocacy Group Files Amicus Brief Supporting CFTC Position Limits Regulations

In an amicus brief filed with the US District Court for the District of Columbia, the Better Markets group argued that the Commodity Futures Trading Commission has no legal obligation to study the costs of its position limits rule and requiring it to do could imperil financial reform effort. Better Markets is a non-profit, financial reform advocacy group that promotes the public interest in financial reform in the domestic and global capital and commodity markets.

The group said it was inconceivable that Congress would pass financial reform legislation following 2008's financial crisis only to have the reforms hinge on a rule-by-rule study of the costs to industry. Better Markets contended that such a stance would ignore the overriding purpose of the new regulatory framework and give controlling weight to cost concerns from the very industry that precipitated the crisis.

Recently, nineteen U.S. senators filed an amicus brief in federal court supporting action en by the Commodity Futures Trading Commission to impose trading limits on speculators in U.S. commodity markets to combat excessive speculation and combat high prices for gasoline, crude oil, food, and other commodities. Senator Carl Levin (D-MI), who spearheaded the effort on the brief, said that an ongoing contributing factor in high energy prices is excessive speculation in U.S. commodity markets.

The amicus brief concentrates on a single issue: demonstrating that the Dodd-Frank Act made imposing position limits on speculators mandatory, not discretionary. It discusses the plain language of the law, its legislative history, and seven years of Senate investigations and legislative efforts to combat excessive speculation, in part, by imposing mandatory trading limits on speculators. Senator Levin noted that position limits, which have been part of U.S. commodities law since 1936, are a recognized tool to reduce and prevent excessive speculation and price manipulation in commodity markets. ISDA and SIFMA v. CFTC, Civil Action No. 1:11-CV-2146-RLW, DC of D.C,. April 13, 2012.

Two years ago, the Dodd-Frank Act directed the CFTC to clamp down on excessive speculation by imposing trading limits on speculators, he noted, and the CFTC issued a new regulation to do just that. The financial industry challenged the CFTC regulation in federal court, claiming that Congress never meant for the trading limits to prevent excessive speculation to be mandatory. The amicus brief contends that is exactly what Congress meant. The derivatives and securities industry lawsuit asks the court to impose a preliminary injunction to suspend the regulation immediately and summary judgment to invalidate it permanently.