House Democrats Amicus Brief Sides with CFTC in ISDA v. CFTC
Commentary by Bob Zwirb
Representatives Maxine Waters and Collin C. Peterson, ranking members of the House Committee on Financial Services and the Committee on Agriculture respectively, have filed a motion for leave to submit a separate amicus brief in support of the CFTC in its appeal of a federal district court's ruling vacating its promulgation of position limit rules for physical commodities, ISDA v. CFTC, 887 F. Supp. 2d 259 (D.D.C. Sep. 28, 2012). The brief accompanying the motion takes issue with that lower court's ruling that the CFTC had no "clear and unambiguous mandate" to set position limits under the Dodd-Frank Act. Instead, it argues that Congress intended the CFTC to adopt such limits without first determining whether they were necessary or whether they would be efficacious. More specifically, the Waters-Peterson brief argues that "[t]he CFTC was not required or even expected to analyze and determine whether or not it considered position limits to be efficacious in addressing possible harm from speculative trading."
See: Amicus Brief by Ranking Members Waters and Peterson.
Related News Item: CFTC's Appeal Brief on Position Limits Litigation (with Zwirb Comment).
Commentary
The Waters-Peterson brief is virtually identical to one that was submitted by House Democrats when the case was heard by the District Court. It does little more than repeat the position of the CFTC throughout this rulemaking: that it is unnecessary for the CFTC to analyze the need for the rule because: i) Congress mandated that it be adopted promptly following enactment of the Dodd-Frank Act; ii) historically position limits have been established "prophylactically," rather than in response to an already identified problem; and iii) notwithstanding the statute's requirement that such limits be established "as appropriate," the use of the word "appropriate" in the statutory text was intended to describe the level of the position limit, not whether the limits themselves were appropriate.
Even if one accepts at face value these points, there still is an issue that the CFTC and its Congressional allies ignore, that of CEA Section 15(a), which requires the CFTC to consider the costs and benefits of an action "[b]efore promulgating a regulation under this Act." That is not only something that the CFTC did not do here, but something that its position makes unnecessary. But a conscientious fulfillment of this duty, at the very least, would by definition seem to encompass the very issues that the CFTC and the Waters-Peterson and Better Markets amicus briefs argue are not unnecessary for evaluation: whether such limits are necessary to address a problem in the market; whether they would likely be efficacious; and whether they would be cost-effective. In other words, whether the limits being promulgated are "appropriate."
Moreover, it's not clear how influential briefs on behalf of select groups of legislators are in any event, especially when they advance a clearly partisan version of a statute's legislative history and especially when that version is advanced, as here, in an ex post manner. On that point, when the House Democrats submitted their brief advocating this policy to the lower court, former acting chairman of the CFTC, Sharon Brown-Hruska, questioned whether such a partisan brief would be helpful to the court in making a judgment. See Peter Madigan, Partisan brief won't affect position limits lawsuit, says former CFTC chair, Risk.net (May 7, 2012). Apparently it was not given the outcome there. Whether the resubmission of that brief, which urges the D.C. Circuit to dispense with any economic analysis, will be influential seems uncertain, at best. This is, after all, the same appellate court that has repeatedly held that regulatory agencies have "a statutory obligation to determine as best it can the economic implications of the rule," Chamber of Commerce v. SEC, 412 F.3d 133, 143 (D.C. Cir. 2005), and that has repeatedly sanctioned the SEC for "ducking serious evaluation of the costs that could be imposed" by its rules. Business Roundtable and Chamber of Commerce v. SEC, 647 F.3d 1144, 1152 (D.C. Cir. 2011).