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Persistent Lack of Deliberation by the CFTC

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Last week, the Commodity Futures Trading Commission voted to appeal a district court decision that temporarily stalled its controversial position limits rule. The CFTC's decision to appeal is a disappointing confirmation of the agency's rash approach to rulemaking under Dodd-Frank.

Although the rule was challenged on multiple grounds, the court's ruling focused on the CFTC's statutory mandate. The court held that the CFTC was wrong to conclude that the Dodd-Frank directive on position limits was clear. The court vacated the rule and remanded it to the CFTC for a fresh look in light of "the fundamental ambiguities in the statute."

The CFTC declined to take a second look. Instead, it chose, over the objection of two commissioners, to appeal the court's ruling. Commissioner Chilton defended the decision to "send a message that the largest speculators on the planet can't litigate regulators to death. We will fight back. Your deep pockets can't protect you from what the law clearly states." His tough stand is characteristically colorful, but, as dissenting Commissioner O'Malia explained, rather than wasting CFTC resources by prolonging litigation, "it would be much more logical for the Commission to go back to the drawing board now to study the markets and to determine whether new position limits are in fact necessary, and only if so then to decide on the most cost-effective way of establishing such limits."

The CFTC's decision to appeal is another lost opportunity for an agency that has consistently rejected calls for deliberate regulation.

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There are two reasons the CFTC decided to appeal the decision. The Circuit Courts have always had a "hands off" policy concerning the CFTC, letting it do pretty much what it wants. And the District Court's decision seems to be kind of wishy-washy. "Gosh, we realize you guys can ignore us and do whatever you want. You can even rewrite the same rules if you want. If you ask us, you shouldn't. But you can." Paraphrasing the District Court's opinion, of course.

Why wouldn't they appeal? Of course the CFTC could simply reissue the same rules I suppose. But that isn't as dramatic as having the DC Circuit overturn the District Court. Certainly, institutional agency hubris wasn't involved.

From lexology.com:

The Court’s Ruling Under Step Two of the Chevron Analysis

Because the statute does not speak unambiguously to the issue, the court moved to the second step of the Chevron analysis. Under the second step of Chevron, a court will grant deference to the agency’s interpretation of ambiguous statutory language if the court finds the agency’s interpretation to be based on a permissible reading of the statute. In this case, however, the CFTC did not recognize any ambiguity in the relevant statutory language. Rather, the CFTC determined that Congress had spoken clearly and unambiguously in requiring the CFTC to impose position limits. The court held that because the CFTC did not recognize and address the statutory ambiguity, the agency’s interpretation was not entitled to deference. Id. slip op. at 36 (“It is well-settled in this Circuit that deference to an agency’s interpretation of a statute is not appropriate when the agency wrongly believes that interpretation is compelled by Congress.”) (internal quotation omitted). The court accordingly remanded the position-limits rule to the CFTC and directed the agency to “bring its experience and expertise to bear in light of competing interests at stake to resolve the ambiguities in the statute.” Id. slip op. at 38 (internal quotation omitted). The court stated that where an agency has failed to interpret an ambiguous statute it has been charged with administering, it “is not for the court to choose between competing meanings.” Id. slip op. at 38 (internal quotation omitted). Rather, the court stated that it was appropriate “to remand the rule to the agency so that it can fill in the gaps and resolve the ambiguities.” Id. slip op. at 39. Importantly, the court said it did not foreclose the possibility that the CFTC might reasonably conclude on remand, after analyzing the relevant statutory language, that it may permissibly impose position limits without first making findings that such limits are “necessary” or “appropriate.”

Because the court determined that Section 6a is ambiguous and accordingly remanded the position-limits rule to the CFTC to permit it to resolve the ambiguities in the statute, the court held that it need not address the plaintiffs’ other claims that the rule and the specific limits and procedures it established violated the Administrative Procedure Act. For similar reasons, the court also declined to determine whether the agency improperly failed to conduct a sufficient cost-benefit analysis pursuant to 7 U.S.C. § 19(a).

Vacatur of the Position-Limits Rule

While recognizing that the CFTC might decide on remand to impose the same position limits that it imposed in the first instance (with or without findings that such limits are “necessary” or “appropriate”), the court exercised its discretion to vacate the position-limits rule in its entirety due to the seriousness of the CFTC’s error in failing to recognize and resolve the ambiguity in the statute, and also because of the market disruption that would result from allowing the rule to go into effect as written when the CFTC might reach a different result on remand.

Possibility of Appeal

The CFTC will have an opportunity to appeal the district court’s order to the U.S. Court of Appeals for the District of Columbia Circuit. If it files a notice of appeal, the CFTC could also seek an emergency stay of the district court's order, which, if granted, would permit the position-limits rule to go into effect pending the appeals process. Unless and until a stay of the district court’s order is granted and/or the order is overturned on appeal, the CFTC’s current position-limits rule has no force or effect and compliance with the rule is not required.


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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


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The Manhattan Insitute's Center for Legal Policy.