CFTC Fights Back, Votes 3-2 to Appeal Position Limits Ruling

The Commodity Futures Trading Commission (CFTC) will move forward with an appeal of a federal court’s decision against position limits.  The Commission approved the appeal on a 3-2 vote.

The position limits rule puts a limitation on the number of speculative positions one can hold on a given underlying security. Position limits are a “crucial” component of financial regulation, according to CFTC Chairman Gary Gensler. The CFTC was attacked for pursuing position limits, before the election, by House Republicans. They deemed the pursuit of position limits “ideological” and “wasteful.”

Gary Gensler on the Position Limits Appeal:

“As part of the Dodd-Frank Act, Congress directed the Commission to limit promptly speculative positions in physical commodity futures and options contracts and economically equivalent swaps. The rule addresses Congress’ concern that that no single trader be permitted to obtain too large a share of the market, and that derivatives markets remain fair and competitive. I believe it is critically important that these position limits be established as Congress required. I support the Commission’s continued efforts to put in place position limits on speculative positions by appealing the September ruling.”

CFTC Commissioner O’Malia Dissents:

CFTC Commissioner Scott O’Malia has long been a critic of the CFTC’s pursuit of position limits. Part of his dissenting opinion is contained below:

“Even if the Commission successfully appeals the ruling, there is a very good chance that the Commission would be right back in the district court to defend against plaintiffs’ other challenges, including their argument that the Commission failed to adequately weigh the costs and benefits of the rule. To save the Commission’s time and resources, it would be much more logical for the Commission to go back to the drawing board now to study the markets and to determine whether new position limits are in fact necessary, and only if so then to decide on the most cost-effective way of establishing such limits.”

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