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Rule Requiring Funds to Register with the CFTC Upheld

Last week, the U.S. District Court for the District of Columbia issued a ruling rejecting the challenge to CFTC rules requiring many funds using futures, swaps, and options to register with the CFTC.  The District Court rejected the claims of the ICI and the Chamber of Commerce, stating that the CFTC acted consistently with its governing statute, the Commodity Exchange Act, in considering the costs and benefits of its rule.  The judge stated that: “The Court is satisfied that the CFTC considered the relevant factors, acted well within its discretion, and that there was nothing arbitrary or capricious about the CFTC’s actions in promulgating the Final Rule.”

The District Court was not persuaded by the argument that regulation of mutual funds by the SEC would make further regulation of funds as commodity pool operators (CPOs) unnecessary.  The opinion states that the two regulators have jurisdiction over different segments of the financial markets.  The opinion also discusses the CFTC’s expanded role in regulating swaps in the Dodd-Frank Act, including the requirement that the definition of CPO include entities that trade swaps.  Finally, the opinion found that the efforts to harmonize the SEC and CFTC rules would address any concerns about overlapping regulation.

The ICI and the Chamber of Commerce used the recent D.C. Circuit cases overturning SEC rulemakings on the basis of inadequate cost-benefit analyses as a key part of their case.  The District Court judge was not persuaded by the arguments, concluding that the SEC “did not consider responsibly the costs of their proposed rules, while the CFTC here, by contrast, did.”

The District Court did not consider the part of the case dealing with compliance costs for the new requirements because the harmonization rules designed to prevent conflicting regulations had yet to be finalized.

We will keep you apprised regarding progress in the case, including any decision by the ICI and the Chamber of Commerce on whether to appeal the decision.

The text of the case is available here.

The Forum filed an amicus brief in the case.  That brief is available here.