The Securities Industry and Financial Markets Association (“SIFMA”) and the International Swaps and Derivatives Association (“ISDA”), two financial services trade groups, have filed a lawsuit challenging the CFTC’s position limits rule. New position limits regulation was drafted under the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was narrowly approved this October by a 3-2 vote.
SIFMA and ISDA have filed a complaint asserting that the position limits rule inadequately fulfills the cost-benefit analysis required of all new futures regulation. An appeal on these grounds allowed the U.S. Chamber of Commerce to successfully block the implementation of corporate governance regulation created by the SEC.
The position limits rule has been the target of industry ire for many months. When the Commission proposed its first draft of the rule, it received 15,000 comment letters. The rule caps the number of positions a firm may take in particular commodity contracts as a way of limiting the possibility for speculation. Pressure to enact position limits first appeared after an oil price spike in 2008, and language permitting such a rule made its way into the Dodd-Frank Act. Anxiety in the energy markets during the Arab Spring this year sent fuel prices soaring again, and many called on the CFTC to finish the rule as soon as possible.
Though segments of the public and well as politicians clamored for effective position limits, industry members and like-minded politicians lobbies against it. Of the lawsuit, ISDA chief executive said this: “The position-limits rule as adopted by the CFTC was poorly crafted based on an incorrect reading of the law, and absent any sound economic or cost-benefit analysis,” said Conrad Voldstad, chief executive of the derivatives group.”