Regulator Prepare to Appeal Dodd-Frank Court Ruling

Regulators are preparing to appeal a recent court ruling that struck down new curbs on Wall Street trading.

The Commodity Futures Trading Commission has drafted a plan to challenge the ruling handed down this month by a federal judge in Washington. The court decision, cheered by Wall Street, halted the agency's so-called position limits rule, a plan that would cap speculative commodities trading.

It is unclear when the agency will file the appeal before the United States Court of Appeals for the District of Columbia. Three of the agency's five commissioners must first sign off on the plan, which will likely happen in the coming days.

“I hope that the agency will appeal in the next few days,” said Bart Chilton, a Democratic commissioner at the agency who championed the position limits proposal. He added that, if the agency has not appealed by the end of next week, he “will be disappointed.”

But the appeals court is not necessarily the answer to the agency's problems. The court, dominated by Republican appointed judges, has been unfriendly to financial regulators in the recent past, throwing out Securities and Exchange Commission rules six times in seven years.

The position limits case stems from lawsuit brought by a pair of Wall Street trade groups. In the suit filed in December, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association accused the agency of overstepping its authority. The groups point to the fine print of Dodd-Frank, the regulatory overhaul that created the position limits plan, saying the law leaves it to regulators to enforce position limits only “as appropriate.”

But the trading commission argued that Congress gave it no choice but to impose position limits. The “appropriate” requirement refers to setting position limits at a reasonable level, the agency argued.

The rule would limit the number of derivatives co ntracts a trader could hold on 28 commodities, including gold and energy products like oil and natural gas. The rule, supporters say, would protect consumers from speculative commodities trading that some studies have linked to inflated prices at the gas pump.

“I believe it is critically important that these position limits be established as Congress required,” the agency's chairman, Gary Gensler, said this month.