Saturday, April 14, 2012

US Senators File Amicus Brief Supporting CFTC in Position Limits Case

Nineteen U.S. senators have 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.

In addition to Senator Levin, the brief was files by Senators Mark Begich (D-AK), Richard Blumenthal (D-CT), Barbara Boxer (D-CA), Sherrod Brown (D-OH), Maria Cantwell (D-WA), Ben Cardin (D-MD), Dianne Feinstein (D-CA), Tom Harkin (D-IA), Patrick Leahy (D-VT), Joe Manchin (D-WV), Claire McCaskill (D-MO), Robert Menendez (D-NJ), Barbara Mikulski (D-MD), Bill Nelson (D-FL), Bernie Sanders (I-VT), Jeanne Shaheen (D-NH), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR).

The brief notes that after seven years of Congressional studies finding excessive speculation and price manipulation in the commodities markets, due in part to regulatory loopholes and CFTC waivers of position limits, the Dodd-Frank Act intended to make those position limits mandatory. The brief also stated that, in Dodd-Frank, Congress repeatedly referred to the limits as required because it intended to make them so. Had Congress intended to make position limits discretionary, reasoned the Senators, it is inexplicable that it would have referred to them as required rather than, for example, as permitted or authorized.
Instead, Congress chose to direct the CFTC to establish position limits within a set period, chose to do so unconditionally, and chose to describe those limits as required. The industry’s reading of the statute would nullify all of those deliberate choices by Congress and substitute a permissive regime that Congress foreclosed.

In light of Congress’ own work in this area, contended the Senators, the industry’s suggestion that Congress wanted the CFTC to conduct duplicative studies regarding the existence of excessive speculation and the necessity of position limits rings hollow and is unsubstantiated by the record. A more logical conclusion, and one that is consistent with the statutory language, is that having determined that the level of speculation in the commodities markets was excessive, and that position limits were too often missing or waived, Congress directed the CFTC to impose mandatory position limits within a specified time period to address excessive speculation, and to report back to Congress within twelve months on any resulting effects.