The U.S. Commodity Futures Trading Commission (CFTC) will now deal with another court case that could bring into question the regulatory terrain shared between the CFTC and SEC.
The mutual-fund industry filed an appeal to the U.S. Court of Appeals for the District of Columbia Circuit today. The appeal argues that new CFTC registration requirements for fund firms that trade in oil, gold, and some other commodities are in excess of current SEC registration requirements. A federal district court upheld the CFTC’s position earlier this month.
The appeal chimes with recent arguments used by House GOP members that the SEC and CFTC have lingering jurisdictional issues. It also comes at a moment when new calls are being made for a merger between the SEC and CFTC. Though its prospects are unlikely, Congressman Barney Frank, co-author of Dodd-Frank, has made a potential merger his final clarion call in Congress.
In November, House Republicans were forced to recant their support for an SEC-CFTC merger. They recommended a merger in order to cut down on waste, which they expressed as the needless overlap of agency resources. The GOPrecommendation came with a report on the failures of the CFTC and SEC with regard to a proprietary trading scandal at MF Global. But when House GOP members who would lose control of regulatory purse strings caught wind of the report, the party quickly towed the line.
Eugene Scalia, son of Supreme Court Justice Antonin Scalia, filed the appeal on behalf of the fund industry. The Wall Street Journal reports that he has won five recent challenges against financial regulators.
What does it mean if the CFTC loses the appeal? It could mean that the CFTC needs to radically alter its approach to cost-benefit analysis, since many of the cases hinge on these arguments. It could determine, too, whether the agency goes back to the drawing board on position limits.
Yet, paradoxically, losing this case could bolster arguments for a CFTC-SEC merger. This would be a boon to arguments that the agencies should merge into a much larger entity funded by a transaction tax. The idea would be that no overlap or territorial gaps would remain.