Friday, October 12, 2012

In Letter to CFTC, House Oversight Chairs Ask for Accounting of Agency Resources Expended on Position Limits Rule

In the wake of a federal court ruling striking down the CFTC’s recently-adopted Position Limits Rule under the Dodd-Frank Act, House Oversight Chairs emphasized that the spending of limited resources to promulgate and defend the Position Limits Rule represents a serious mismanagement of CFTC priorities. In a letter to CFTC Chair Gary Gensler,  they asked the Commission to provide the total number of CFTC-staff labor hours dedicated to the Position Limits rulemaking process, including the drafting of the proposal, meetings with interested parties, and analyzing the comment letters, as well as the total dollar amount associated with that labor.

Similarly, they also asked the Commission to provide the total number of CFTC-staff labor hours spent litigating the rule, as well as any costs expected if the agency intends to appeal the decision to the DC Circuit and/or redo the rulemaking. An accounting of any funds expended on outside counsel related to these efforts is also requested. The letter was signed by Financial Services Committee Chair Spencer Bachus (R-AL), Committee Vice Chair Jeb Hensarling (R-TX), Oversight and Investigations Subcommittee Chair Randy Neugebauer (R-TX) and Capital Markets Subcommittee Chair Scott Garrett (R-NJ). The House leaders expect the CFTC’s response to these requests by October 26, 2012.

 A federal district judge ruled that the CFTC did not promulgate the Position Limits Rule on derivatives based on a correct and permissible interpretation of the statute at issue. The plain text of the statute requires that position limits be set as the Commission finds are necessary to diminish, eliminate, or prevent excessive speculation. The statute does not state that the CFTC may do away with or ignore the necessity requirement in its discretion. ISDA, et al v. CFTC, DC of DC, Civil Action No. 11-cv-2146.

In the letter, the House Oversight Chairs said that the court’s decision raises fundamental questions about the adequacy of the CFTC’s rulemaking process. The CFTC’s inability to adhere to Dodd-Frank was, in the view of the Chairs, confirmed when Judge Wilkins vacated the Position Limits Rule by stating that the CFTC’s error was that it fundamentally misunderstood and failed to recognize the ambiguities in the statute. Judge Wilkins also said that the CFTC failed to bring its expertise to bear when interpreting the statute and offered no explanation for how its interpretation comported with the policy objectives of Dodd-Frank.

Given the court’s finding that the CFTC failed to properly justify the rule, the House leaders are concerned that CFTC funds were prioritized to promulgate and defend a rule that was not central to the financial crisis. They are also concerned that CFTC staff are using limited resources to pursue ideological and political goals rather than using the resources allocated by Congress to carry out the direct requirements of the agency.

The CFTC is seeking almost a 50 percent increase in its budget for FY 2013 to fulfill its Dodd-Frank mandates, noted the Oversight Chairs, while simultaneously engaging in projects unrelated to the financial crisis and not required by Congress. This is draining CFTC resources at the same time the Commission is citing fiscal restraints for its inability to fulfill Dodd-Frank mandates.