Alert October 02, 2012

Federal Court Vacates and Remands CFTC Position Limits Rule

A U.S. federal district court vacated and remanded the CFTC’s final rule imposing a position limits regime for derivatives contracts tied to twenty-eight different agricultural, metal, and energy commodities.  The rule, passed on a party line vote in October 2011, was intended by its supporters to curb excessive speculation in the commodities markets.  As previously reported, the International Swaps and Derivatives Association (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) challenged the rule in court, claiming that the CFTC was required to determine that the rule is necessary and appropriate before adopting it.  The CFTC argued, in contrast, that the Dodd-Frank Act mandated the rule’s adoption and that it was therefore unnecessary for the CFTC to make such a determination. 

The court ruled that the CFTC must make a finding of necessity prior to imposing position limits.  The court’s action prevents the rule from becoming effective, but does not preclude the CFTC from subsequently adopting the same or a similar rule after having determined that the rule is necessary and appropriate.

CFTC Chairman Gensler responded to the court’s ruling with a brief statement reiterating his belief that Congress directed the CFTC to issue the rule.  The statement concluded, “I am disappointed by today’s ruling, and we are considering ways to proceed.”