On February 7, the Securities Industry and Financial Markets (“SIFMA”) and the International Swaps and Derivatives Association (“ISDA”) asked a federal court to block CFTC position limits. Under the Dodd-Frank Act, the Commission curbed the number of contracts a trader can have, in an attempt to prevent excessive speculation in oil, gold and other commodity markets. The Wall Street groups claim that the caps would impose a burden on their industry, damage traders’ capacities to hedge against risks, and cause “irreparable harm” to consumers and markets.
SIFMA and ISDA represent J.P. Morgan, Goldman Sachs, Morgan Stanley, and hundreds of other securities firms, banks, and asset managers. In December, they filed two federal lawsuits against the CFTC. They also asked the US Appeals Court to delay the position limits. The appeals court dismissed the case in January on the grounds that a challenge to legislation must be heard by lower courts before it can be argued before the appeals court.
In yesterday’s most recent petition, the financial groups asked the U.S. District Judge Robert Wilkins to delay the CFTC’s rule while he considered their case. They told the court that a stay will “avoid imposing costs that the agency concedes will occur and that a majority of the (CFTC) commissioners determined would harm consumers and the markets as a whole.” According to the groups, the costs to the industry could never be recovered. They also said that the CFTC did not conduct the proper cost-benefit analysis before adopting the rule, and did not make any findings as to the limits necessity.
The CFTC narrowly approved the positions limit in October, squeaking by at 3 votes to 2. At the time, market analysts predicted that industry groups would bring legal action in the conservative D.C. Circuit courts, regarding the CFTC’s authority to preemptively impose position limits. In December, SIFMA and ISDA argued that the position limits were unjustified and went beyond the Commission’s authority. Traders call the limits politically motivated attempts to cap prices, that will increase price volatility and reduce liquidity.
