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Federal judge questions CFTC’s position limits

A federal judge refused a request on Monday for a preliminary injunction to stop the Commodity Futures Trading Commission from instituting a mandate that limits the number of oil contracts a speculator can control.

The Securities Industry and Financial Markets Association and the International Swap and Derivatives Association are challenging the “position limits” mandated by the Dodd-Frank Act of 2010. The groups maintain that financial institutions, including Barclays PLC and JPMorgan Chase & Co., are losing millions to preparations for a rule that is more than likely to be overturned.

U.S. District Judge Robert Wilkins told the CFTC and the two groups’ lawyers that he expects to make a decision soon on whether to hear the case, the Republic reports. Wilkins also expressed concern regarding the arguments presented by the CFTC in support of the position limits.

“I’m kind of skeptical about their position of Congress mandating position limits,” Wilkins said during a hearing in Washington, according to Bloomberg.

The two groups maintain that the CFTC did not bother to properly study whether the regulation was needed, nor did the commission examine the costs associated with implementing the rule.

“This is not a country where we look at tens of millions of dollars in direct costs and the entire restructuring of an industry and say that’s not irreparable harm,” Eugene Scalia, a lawyer for the groups, told the judge, Bloomberg reports.

Wilkins also expressed concern that Congress would instruct the commission to implement such a rule without comprehensive analysis.

“That seems to me an astonishing position to take,” the judge told CFTC deputy counsel Jonathan Marcus, according to the Republic.

With projected fuel costs skyrocketing, Congress ordered the CFTC to implement the position limits under concern that speculators outnumber end users of oil and other commodities. As of Monday, the price per barrel of oil has increased by $23 since the end of October 2011.

The CFTC’s position limits cannot take effect until the agency defines swaps, which is set to take place in April.

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