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CFTC votes to appeal district court ruling on position limits rule

Gary Gensler

The Commodity Futures Trading Commission voted last week to appeal a decision by a U.S. district court that struck down its position limits rule aimed at curbing speculative derivatives trading following the 2008 financial collapse.

Although the rule was challenged for a number of reasons, the court’s decision was centered primarily on the regulator’s statutory mandate. Judge Robert Wilkins said that the CFTC failed to determine whether limiting the number of commodities contracts a trader can have was necessary and appropriate. The court also sent the rule back to the CFTC for reconsideration, citing “fundamental ambiguities in the statute,” PointofLaw.com reports.

“The rule addresses Congress’ 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 Bloomberg. “I believe it is critically important that these position limits be established as Congress required.”

The CFTC’s decision to appeal the court ruling did not go unchallenged. Two commissioners, including Scott O’Malia, voted against appeal. O’Malia questioned the CFTC’s decision to “double down on its no-justification needed stance.”

“Even if the Commission successfully appeals the ruling, there is a very good chance that the Commission would be right back in the district court to defend against plaintiffs’ other challenges, including their argument that the Commission failed to adequately weight the costs and benefits of the rule,” O’Malia said in his dissent. “To save the Commission’s time and resources, it would be much more logical for the Commission to go back to the drawing board now to study the markets and to determine whether new position limits are in fact necessary, and only if so then to decide on the most cost-effective way of establishing such limits.”

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