CFTC Position Limits Rule Lawsuit Dismissed by Appeals Court

Two Wall Street groups’ challenge to a U.S. Commodity Futures Trading Commission rule on position limits must first be considered in a trial court, a federal appeals court ruled, dismissing the case.

A three-judge panel of the U.S. Court of Appeals in Washington today said it doesn’t have jurisdiction to consider the case because the Commodity Exchange Act and last year’s Dodd-Frank law “are silent” on whether the rule can be directly challenged to the appeals court.

“Initial review occurs at the appellate level only when a direct-review statute specifically gives the court of appeals subject-matter jurisdiction to directly review agency action,” Judges Judith Rogers, Merrick Garland and Janice Rogers Brown said, citing circuit precedent. “There is no express congressional authorization of direct appellate review applicable to the petition for review in this case.”

The International Swaps and Derivatives Association Inc. and Securities Industry and Financial Markets Association filed an emergency request Jan. 9 urging the appeals court to put the rule on hold while the court considers their legal challenge. The groups asked the court to issue a ruling by Jan. 27.

By dismissing the case, the judges also rejected that request.

The groups, in one of the financial industry’s highest-profile efforts to weaken last year’s Dodd-Frank law, filed lawsuits challenging the rule in two federal courts in Washington last month. The district court lawsuit had been put on hold while the appeals court considered the case.

Flawed Analysis

They argue that the CFTC used a flawed analysis of Dodd-Frank when it decided to impose the restrictions. The associations also said the CFTC failed to properly weigh the rule’s costs and benefits.

Steven Adamske, a CFTC spokesman, declined to comment on today’s ruling.

The CFTC on Jan. 4 asked the appeals court to dismiss the challenge claiming it doesn’t have jurisdiction to consider the lawsuit.

Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, said the association “will move forward quickly in the district court.”

“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,” Hammerman said.

Steve Kennedy, a spokesman for the International Swaps and Derivatives Association Inc., didn’t immediately respond to a phone message seeking comment after business hours.

Controversial Provisions

The two associations represent JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, among other banks and asset managers.

The rule is among the most controversial provisions of Dodd-Frank, and spurred more than 13,000 public comments to the CFTC from supporters including Delta Air Lines Inc. and opponents such as Barclays Capital. The agency voted 3-2 at an Oct. 18 meeting to approve the final regulation, with Jill E. Sommers and Scott O’Malia, both Republicans, voting in opposition.

The case is International Swaps and Derivatives Association v. CFTC, 11-01491, U.S. Court of Appeals for the District of Columbia (Washington).

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