AU.S. judge has knocked back tough new rules to clamp down on excessive speculation in commodity markets, handing an 11th-hour victory to Wall Street’s biggest banks and angering lawmakers concerned about high prices for gasoline and other raw materials.
Just two weeks before the “position limits” rule was to take effect, U.S. District Court Judge Robert Wilkins on Sept. 28 sent it back to the U.S. Commodity Futures Trading Commission for further consideration. The court said the Dodd-Frank law did not give the agency a “clear and unambiguous mandate” to set position limits without showing they were necessary.
It is the second legal setback for regulators struggling to implement the sweeping reforms enacted after the 2008 financial crisis and the first for any CFTC rule in the agency’s history.
CFTC Chairman Gary Gensler, who had made reining in speculation a top priority, said he was “disappointed” and considering other options.
Experts said the decision may embolden the financial industry to push ahead with more lawsuits.
“I think outside of Washington, people expected that Congress passes a law the President signs it and these things can immediately go into effect, but it is clear the courts will have a lot to say about how Dodd-Frank is implemented,” said James Overdahl, a former chief economist at the CFTC.
Wilkins also found that the Dodd-Frank bill required the CFTC to prove caps are “necessary” to diminish or prevent excessive speculation. Experts have debated for years whether speculation makes commodity prices more volatile.
The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association, which brought the suit against the agency, lauded the court decision. The groups argued that the regulations would force their members to drastically alter their businesses, cost them tens of millions of dollars, and send customers fleeing.
The ruling comes just as the CFTC shows it is getting tough with excess speculation through enforcement of existing rules. In the past month alone, firms and individuals have agreed to pay the CFTC more than $2 million to settle charges involving trades in cotton, oilseed and grain markets that are already subject to limits.