Lawyers for two derivatives industry groups suing to block the US Commodity Futures Commission’s position limits rule are claiming that the commission’s decision to relax portions of the rule are an admission that the rule is flawed.
The CFTC originally proposed that positions held by an affiliate would count against the overall limit if a firm owned at least 10% of the affiliate. On Friday the commission decided to raise the threshold to 50%, provided certain conditions are met.
Lawyers for ISDA and SIFMA called the move it a “positive development,” but said that the rule should be scrapped entirely, as it is the result of a flawed approach to regulating systemic risk.
“Even if the [CFTC] puts in place a less draconian aggregation standard, it has still failed to offer a reasonable explanation for the need for position limits for the specific commodity contracts it chose to regulate and why the particular levels it selected were necessary and appropriate,” the lawyers said said in court papers filed Monday in the US District Court for the District of Columbia.
CFTC lawyers responded with a filing stating that the change was the result of public comment, and not any flaw inherent in the rule.