May 16, 2021

DealBook: Commodity Traders’ Complaint Is to Be Heard by a Lower Court

Wall Street’s legal challenge to a regulatory crackdown met a procedural obstacle last week, when a federal appeals court dismissed the case.

The lawsuit, directed at the Commodity Futures Trading Commission’s new restrictions on speculative trading, will now move to a lower-level court, delaying a decision on the legitimacy of the regulatory overhaul.

At issue is a rule intended to curb speculative commodities trading, which some consumer advocates have blamed for inflating prices at the gas pump and the grocery store.

But Wall Street says the rule will crimp legitimate trading while doing little to subdue volatile energy costs.

In December, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association filed a lawsuit challenging the so-called position limits rule, which would cap the number of contracts a trader can hold on 28 commodities, including oil and wheat. The influential Wall Street trade groups filed the lawsuits in two federal courts — the United States Court of Appeals for the District of Columbia Circuit and a lower-level district court in Washington.

But the appeals court late Friday said it lacked authority to hear the case.

“There is no express Congressional authorization of direct appellate review applicable to the petition for review in this case,” three appellate court judges said in a two-page order.

The court also rejected a bid by the trade groups to halt the enforcement of the position limits rule while the case winds through the courts. This month, the Commodity Futures Trading Commission also rebuffed a request to stay the rule.

While the appellate court ruling amounts to a symbolic setback for the trade groups, it will not necessarily affect the success of their legal challenge. The appellate court, often seen as friendly turf for corporate America and Wall Street when they skirmish with regulators, may hear the case after the lower court has ruled.

“The court’s ruling is entirely procedural, and was not a decision about the merits of our challenge or of our request for a stay,” Ira Hammerman, the securities association’s general counsel, said in a statement.

But Bart Chilton, a commissioner, said of the case, “The agency took a lot of time and care coming up with a sensible rule that I don’t believe can be successfully challenged.”

The agency’s position limits rule has emerged as one of the most contentious new policies stemming from the Dodd-Frank regulatory overhaul law, passed in response to the financial crisis. The agency was split, 3-2, when it approved the rule in October.

In the suit, the two groups accused the Commodity Futures Trading Commission of failing to adequately assess the economic effects of the rule. They also argued that the agency “grossly misinterpreted” its authority under Dodd-Frank.

Article source: http://feeds.nytimes.com/click.phdo?i=f7becda9cb4aced144e6bf8250b845bb

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