The Commodity Futures Trading Commission (CFTC) is apparently going to appeal a U.S. district judge’s ruling that had overturned its decision to impose limits on the number of contracts that commodity traders can hold.
The CFTC had found that under the recently passed Dodd-Frank law, which amended the Commodity Exchange Act of 1936, it now need not make a finding of “necessity” before it puts forth a rule to impose these position limits. It had ruled, in fact, that it was mandated by Congress to set limits and that it had no discretion to choose not to impose such limits.
The swaps and derivatives industries, however, challenged the CFTC’s interpretation in U.S. District Court for the District of Columbia. The industries contended that even under the Dodd-Frank amendments, the agency must find that it is “necessary and appropriate” to set position limits. In other words, for each given commodity, it would need to show that there was a risk of dangerous speculation.
On September 28, U.S. District Judge Robert Wilkins rejected the CFTC’s position. He sent the rule back to the CFTC for further consideration, just two weeks before the limits were set to take effect. He said that Dodd-Frank did not give the agency a “clear and unambiguous mandate” to set position limits without showing they were necessary in each instance.
The law, wrote Judge Wilkins, requires “that the Court remand the rule to the agency so that it can fill in the gaps and resolve the ambiguities.”
One would think that the agency would accept this direction from the judge and come up with an interpretation of the Dodd-Frank law that would indeed fill in gaps and resolve ambiguities. That is what an agency is supposed to do.
Now, however, according to Reuters and other reports in early November, there appears to be a CFTC majority – three of the five commissioners — in favor of appealing Judge Wilkins’ decision to the U.S. Court of Appeals for the D.C. Circuit.
It seems odd to us, at the very least, that the agency is insisting on an interpretation of the Dodd-Frank law that strips it of all discretion and requires it to set position limits for dozens of commodities without a finding that the limits are going to be helpful to police the markets and limit excessive speculation. Especially now that a judge has ruled that Congress didn’t unambiguously decide to tie the agency’s hands, why pursue this appeal?