Washington, 4 January 2012

The U.S. Commodity Futures Trading Commission on Wednesday asked an appeals court to dismiss a challenge of its rules aimed at preventing excessive speculation in markets such as oil and gold that was filed by two top industry groups. The futures regulator urged the U.S. Court of Appeals for the District of Columbia Circuit to dismiss the lawsuit, saying the laws under which the rules were passed do not require the appeals court to directly review them.

The CFTC said that none of the provisions cited by the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association "provides  for direct appellate review of their challenge to the rule."

Earlier this week, the CFTC rebuffed a request by ISDA and SIFMA to have the CFTC postpone the rule as part of the lawsuit the groups filed last month, challenging the agency's rulemaking on "position limits."

The CFTC voted 3-2 against the request. The decision was finalized on Tuesday.

"I think if folks pause and take a deep breath, it becomes obvious that we hit a fair balance that will protect consumers and markets and won't harm legitimate business hedging," Bart Chilton, a CFTC Democratic commissioner, said in a statement.

Andrew DeSouza, a spokesman for SIFMA, said the group disagreed with the CFTC's decision and looked forward to presenting its case in court. DeSouza could not immediately be reached to comment on CFTC's motion to dismiss the lawsuit.

The CFTC narrowly approved the position-limit plan in October with a 3-2 vote, but significant dissent existed within the agency on whether the rule was needed. Curbing excessive speculation is part of the CFTC's efforts to enact sweeping reforms in the Dodd-Frank financial reform overhaul of 2010.

Most on Wall Street have decried the notion of capping the number of futures and swaps contracts any trader can hold. They view the proposal, first made following a commodity spike in 2008, as a misguided political attempt to stem soaring prices.

In the suit, which had been widely expected given fierce objections from big investment banks and traders, the groups said the CFTC rule to prevent excessive speculation in markets was procedurally flawed and "lacked a reasoned basis".

They said evidence showed limits were not necessary and could negatively impact commodity markets and users. The trade groups have asked that the CFTC prove the limits are necessary before they take effect.

The position-limit rules will be phased in over time, with the final limits for all contract months set only after the agency has collected a year's worth of swaps data. That process will likely be finished late into 2012, the CFTC has said.

Ends --

By Christopher Doering and Jeremy Pelofsky, Reuters - for Commodities Now.