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CFTC Files Brief

The CFTC has responded to the allegations in the lawsuit filed by the Chamber of Commerce and the ICI over the CFTC's recent adoption of Rule 4.5, which will have the effect of requiring many mutual funds to register with the CFTC by December 31, 2012.  The lawsuit had alleged that the CFTC failed to properly evaluate the costs and benefits of the rule change.  If successful, the suit would result in the rule amendments being set aside. 

The CFTC argues strongly that its selection of registration criteria was reasonable, and that it properly considered the costs and benefits of the rule, as it is required to do under law.  The costs of complying with the rule, the CFTC noted, won't be known until after the conclusion of its "harmonization" rulemaking, making it impossible to correctly forecast costs of implementation.  Moreover, the CFTC asserts, the agency has broad discretion on how to "consider" costs and benefits when weighed against the public benefits to be achieved by a rule.  The CFTC argues that prior court rulings invalidating SEC rules for inadequate cost benefit analysis are both wrongly decided and don't apply, as the statutes governing the SEC differ from those governing the CFTC.  Finally, the CFTC notes that the "systemic benefits" of its rule simply cannot meaningfully be quantified, while the benefits are "significant" because the CFTC "may be able to use this data to prevent future shocks to the US financial system."

A link to the brief is here.