Magazine article Modern Trader

CFTC Sued on Position Limits

Magazine article Modern Trader

CFTC Sued on Position Limits

Article excerpt

In what surely is the first of many legal challenges to new CFTC rules based on the Dodd-Frank Act, the International Swaps and Derivatives Association (ISDA) and Securities Industry and Financial Markets Association (Sifma) recently filed a lawsuit challenging the newly passed position limits rule.

The rule, which passed the CFTC along a party-line vote, was adopted in October and aims to reduce "excess speculation" by expanding position limits to 28 different commodities. It expands the scope of existing CFTC limits on futures and options contracts to those in swaps based on agricultural contracts, energy and metals.

"A lot of what we're talking about here isn't specific to position limits, but more related to the process and analysis that the Commission has gone through," says Robert Pickel, executive vice-chairman at ISDA. "Why we think this particular rule is ripe for challenge is the fact that a majority of the Commission, including Commissioner Michael Dunn who no longer is there, said they didn't see the value of position limits; they thought position limits actually might harm the markets."

Dodd-Frank significantly increased the jurisdiction of the CFTC by adding the over-the-counter (OTC) swaps markets to those it already oversees. Howard Tai, senior analyst at Aite Group, is not surprised swap advocacy groups are challenging rules. "The CFTC is exerting their jurisdiction into ISDA's turf with its position limits on swaps, which are an OTC instrument, and ISDA is a self-regulated industry organization that governs the OTC contractual space," he says. "The last thing they want to do is have a regulator like the CFTC get in their crosshairs. Of course they're going to fight this."

The lawsuit largely centers on the CFTC's procedure in passing the rules as well as the agency's interpretation of Dodd-Frank. …

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