CFTC appeals ruling on Dodd-Frank position limits

Scott O’Malia

The Commodity Futures Trading Commission voted recently 3-2 to appeal a decision by a U.S. district judge who rejected reform efforts aimed at eliminating speculative derivatives trading following the 2008 financial collapse.

The commission requested on Thursday that a three-judge panel reverse Judge Robert Wilkins’ ruling, which indicated that the CFTC failed to determine whether limiting the number of commodities contracts available to traders was necessary.

“The rule addresses Congress’s concern that no single trader be permitted to obtain too large a share of the market, and that derivatives markets remain fair and competitive,” Gary Gensler, the chairman of the CFTC, said, according to Businessweek. “I believe it is critically important that these position limits be established as Congress required.”

The judge’s decision to block the rule signified a victory for the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association, both of which challenged the 2010 Dodd-Frank Act.

The financial industry has brought several cases to court as it pushes back against tighter financial regulation passed under Dodd-Frank.

“Regrettably, instead of taking the opportunity to revise its flawed reading of the statute, the commission has decided to double down on its no-justification-needed stance by appealing the district court’s ruling,” Scott O’Malia, one of the commission’s two Republicans, said, Businessweek reports.

The CFTC estimated that the limits, which apply to 28 physical commodity futures and swaps, including milk, oil, oats, wheat and silver, would affect 85 energy trading firms, 84 agriculture trading firms and 12 metals traders.

Additionally, the rule, one of the most controversial provisions of Dodd-Frank, requires traders to aggregate their positions and would limit exemptions allowing bona fide hedgers to exceed the limits.

“Our appeal should also send a message that the largest speculators in the world can’t litigate regulators to death,” Bart Chilton, a commission Democrat, said, according to Businessweek. “Your deep pockets can’t protect you from what the law clearly states.”

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