Wall Street's top trade groups launched on Friday a second major legal assault on the biggest overhaul of US financial regulations in decades, suing to block new rules on commodity speculation. In the suit, which had been widely expected given fierce objections from big investment banks and traders, the groups said the Commodity Futures Trading Commission's rule to prevent excessive speculation in markets like oil and gold was procedurally flawed and "lacked a reasoned basis."
The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association also argued that the agency had not conducted sufficient cost-benefit analysis of the tough "position limits" plan, which they say would reduce liquidity and increase volatility. "The evidence is overwhelming that position limits are, at best, unnecessary and may, at worst, negatively impact commodity markets and users," ISDA Chief Executive Conrad Voldstad said in a statement.
"It has the potential to harm markets at a time when they can least afford it," Voldstad and SIFMA President and Chief Executive Officer T. Timothy Ryan, Jr., said. The suit, the first ever against a CFTC rule, was filed in federal court in the District of Columbia. The groups have also petitioned the higher D.C. Court of Appeals to hear the case. That court has already ruled with Wall Street against a Securities and Exchange Commission rule earlier this year, the first piece of Dodd-Frank regulation to be pushed back.
The broadside from Wall Street comes as the financial sector and Republicans intensify efforts to push back on regulators trying to implement last year's sweeping Dodd-Frank reforms, including starving the CFTC of funds. Coupled with the resignation of US Representative Barney Frank this week, a champion of financial reform, Democrats have been struggling to fully implement their vision for a sweeping reform of an industry they believe helped touch off the financial collapse and the deep recession.
The CFTC narrowly approved the position limit plan in October by a 3-2 vote, but there was significant internal dissent within the agency on whether the rule was needed. Most on Wall Street have decried the notion of capping the number of futures and swaps contracts that any single trader could hold. They view the proposal, first made following the commodity spike in 2008, as a misguided political attempt to stem soaring prices.
Much may now depend on where the case is heard, and by whom. At the district court the case will be taken up by US District Judge Robert Wilkins, appointed to the federal bench last year by President Barack Obama. His views on regulation are not widely known, and some of his most high-profile work to date was on civil rights.
Wall Street may have better luck at the appellate level on a court that has more judges appointed by Republican presidents than by Democrats. The Appelate Court in July overturned an SEC rule after finding that the agency had conducted a flawed economic analysis to support a rule that would make it easier for shareholders to nominate directors to corporate boards. Wall Street has lined up several heavy hitters to push the point. The lead attorney is Miguel Estrada at Gibson, Dunn & Crutcher, who helped represent George W. Bush in Bush v Gore at the Supreme Court. Bush later nominated him to a spot on the D.C. Circuit, but Senate Democrats blocked it in one of the first judicial nominations to be successfully filibustered.
He will work with Eugene Scalia, also at Gibson, Dunn, son of US Supreme Court Justice Antonin Scalia, who has made a name for himself working on behalf of financial industry and corporate America clients to successfully beat back several securities regulations at the Court of Appeals. Scalia, who led the fight against the SEC in June, has said the CFTC faces an even higher burden to prove the benefits.