FIA Special Alert
Sept. 28, 2012
District Court Overturns CFTC Position Limit Rule
Today the US District Court for the District of Columbia struck down the CFTC’s position limit rule, which was scheduled to go into effect on October 12, 2012.
The court ruled in favor of the plaintiffs?the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association. The court found that the CFTC “fundamentally misunderstood” the relevant provisions of Dodd-Frank and rejected the CFTC’s interpretation that Dodd-Frank makes the imposition of position limits “mandatory,” rather than “as appropriate” to prevent excessive speculation. The court stated that the case revolved around the question of whether a plain reading of section 6a of the Commodity Exchange Act “clearly and ambiguously requires the Commission to make a finding of necessity prior to imposing position limits.” Based on its reading of the statute, the court concluded, “The answer is yes.”
Although the court vacated the entire rule, the court noted that the Dodd-Frank amendments to Section 6a are ambiguous and lend themselves to more than one plausible interpretation, and added that the CFTC has the authority to
“fill in the gaps” left by Congress.
Following the court’s ruling, CFTC Chairman Gary Gensler issued a statement saying that he was “disappointed” by the ruling and is “considering ways to proceed.”