An appeals court in Washington D.C. has thrown out a lawsuit brought by the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association challenging the CFTC’s new position limits regulation. The court says that the case must first be heard by a lower court before it can be argued before the appeals court.
“There is no express congressional authorization of direct appellate review applicable to the petition for review in this case,” explained the three-judge panel in a brief order issued late last week. Federal laws provide for appellate review of other agency actions, but cases that directly challenge legislation cannot skip the district courts. SIFMA and ISDA have already filed the case in a district court as well. “Although the statute was unclear, we thought that might be the answer and were prepared for it, and for that reason we filed in both courts,” said Steve Kennedy a spokesman for ISDA. “We now will move forward quickly in the district court.”
The position limits rule, which was approved by a narrow 3-2 vote in October of last year, imposes restrictions on 28 physical commodity futures and swaps and all economically equivalent contracts. The spot-month position limits are set at 25% of deliverable supply, while non-spot-moth position limits are set using a ratio specified by the CFTC. If the rule survives this legal challenge, it will go into effect this year. The lawsuit relies on a loophole in the Dodd-Frank Act first discovered by the U.S. Chamber of Commerce. The Chamber argued that the SEC did not thoroughly weigh the costs of an earlier corporate governance rule, and a D.C. court obligingly struck the rule down.