Chamber of Commerce Must Bend to CFTC Rules

     (CN) – The D.C. Circuit upheld new CFTC rules that roll back deregulatory amendments the agency made in 2003 to revitalize its regulation of derivative and swaps markets.
     Pursuant to the Dodd-Frank Wall Street Reform Act, the Commodity Futures Trading Commission proposed new regulations in 2011 to reinstitute stricter regulations that were abandoned in 2003.
     Amendments made in 2003 freed registered investment companies from most rules governing commodity pool operators, in keeping with the deregulatory Commodity Futures Modernization Act of 2000.
     The 2011 regulations reimposed regulations on commodity pool operators, and also extended trading thresholds to futures swaps.
     These changes were necessary because, unlike in 2003, registered investment companies “now offer[] services substantially identical to those of registered entities [that] are not subject to the same regulatory oversight,” the CFTC said.
     In addition, Dodd-Frank introduced a “more robust mandate to manage systemic risk and to ensure safe trading practices by entities involved in the derivatives markets,” the agency said, explaining the rationale for its change of heart.
     A federal judge rejected a challenge to the rules from the Chamber of Commerce and Investment Company Institute, and the D.C. Circuit affirmed Tuesday.
     “Appellants do not argue that the new rule is impermissible under CFTC’s statutory framework,” Judge David Sentelle wrote for a three-member panel. “Instead, appellants argue that CFTC had an obligation to address the rule’s impact on liquidity. But the APA [Administrative Procedure Act] imposes no heightened obligation on agencies to explain ‘why the original reasons for adopting the displaced rule or policy are no longer dispositive.’ So long as CFTC provided a reasoned explanation for its regulation, and the reviewing court can ‘reasonably … discern[]’ the agency’s path, we must uphold the regulation, even if the agency’s decision has ‘less than ideal clarity.'”
     CFTC’s reasoning for its policy change easily cleared this low bar, the panel found.
     In addition, the agency properly considered the cost and benefits of the new rules, and collaborated with the SEC to ensure it does not duplicate or contradict the SEC’s regulations.
     While the CFTC has not finalized several disclosure requirements, Sentelle added that “we see at least two good reasons that CFTC need not count costs from these potential disclosure requirements.”
     “First, the statute does not mandate it, and second, it would be quite literally impossible to calculate the costs of an unknown regulation,” the ruling states. “And as the Supreme Court has emphasized, ‘[n]othing prohibits federal agencies from moving in an incremental manner.'”

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