Court Vacates CFTC Position Limits Rules

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Last Friday, September 28th, the U.S. Federal District Court in Washington, D.C. (“Court”) struck down the commodity speculative position limit rulemaking that the U.S. Commodity Futures Trading Commission (“CFTC”) had adopted on October 18, 2011, which was scheduled to become effective on October 12,2012. Significantly for the first time, the final position limit rules applied to over-the-counter swaps and other derivatives (also referred to as economically equivalent or look-alike contracts). The plaintiffs in the action were the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association (“Plaintiffs”). Below is a brief summary of the Court’s decision.

- The Court stated that the heart of the case was whether the defendant CFTC had misinterpreted its Congressional statutory authority to set position limits.

- Finding in favor of the Plaintiffs (on motion for summary judgment), the Court struck down the rules that had set position limits on futures, options, and swaps on 28 types of commodities.

- The Plaintiffs argued that the Dodd-Frank Act amendments to the Commodity Exchange Act (“CEA”) required the CFTC to determine whether position limits were necessary and appropriate to prevent excessive speculation in the commodity markets. The CFTC argued that the Dodd-Frank Act amendments mandated the CFTC to set position limits without regard to whether the limits are “necessary” or “appropriate.”

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