Court Vacates New CFTC Position Limit Regulations

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In a widely reported decision, on September 28, 2012 the federal District Court for the District of Columbia vacated the Commodity Futures Trading Commission’s (“CFTC”) regulations imposing position limits on speculative positions in futures, exchange-traded commodity options, and swaps related to twenty-eight physical commodities. The court remanded those regulations to the CFTC for proceedings consistent with its opinion. The CFTC’s position limit regulations had been challenged by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association. Prior to the court’s decision, those regulations had been scheduled to take effect on October 12.

In adopting its position limit regulations, the CFTC interpreted Section 4a(a)(1) of the Commodity Exchange Act (“CEA”) as authorizing the CFTC to impose position limits without making a specific finding that such limits are necessary. The court rejected the CFTC’s interpretation, holding that CEA Section 4a(a)(1) “clearly and unambiguously requires the Commission to make a finding of necessity prior to imposing position limits.”

The court decision does not affect the CFTC’s currently existing position limit regulations for commodity futures and exchange-traded commodity options on grains and cotton set forth in Part 150 of its regulations, nor the speculative position limits set forth in the rules of the futures exchanges. Those previously-adopted rules were not challenged in the court proceeding and remain in full force and effect.

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