Regulator Urges Appeal of Dodd-Frank Court Ruling

After a recent court decision overturned limits on speculative trading, a financial regulator on Tuesday slammed the judicial ruling as “deeply flawed” and vulnerable to appeal.

Bart Chilton, a Democratic member of the the Commodity Futures Trading Commission, called for his agency to challenge the ruling handed down last week by a federal judge in Washington. The decision tossed out the agency's new so-called position limits rule, which took aim at speculative Wall Street trading tied to soaring energy prices.

“Position limits are simply too important,” Mr. Chilton said in prepared remarks for a speech in Rome at the United Nations Food and Agriculture Organization headquarters.

Position limits would cap the number of derivatives contracts a trader can hold on 28 commodities, including energy products like oil and natural gas. The rule, Mr. Chilton and other supporters say, would protect consumers from speculative commodities trading. Some studie s link speculative trading to inflated prices at the gas pump and the grocery store.

The rule is rooted in the Dodd-Frank act, the financial regulatory overhaul passed in response to the financial crisis. When the C.F.T.C. adopted the limits last fall, it did so in the face of significant Wall Street opposition.

In December, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association sued the agency over its rule. The Wall Street trade groups pointed to the fine print of Dodd-Frank, saying the law leaves it to regulators to enforce position limits only “as appropriate.”

The agency had a different interpretation, saying that lawmakers gave it no choice but to impose position limits. The “appropriate” requirement, the agency argued, refers to setting position limits at a reasonable level.

“They knew limits were urgent and important,” Mr. Chilton said, referring to the lawmakers who passed Dodd-Frank in 2010. “That means we set the limit levels correctly.”

The status of the rule is unclear. Judge Robert L. Wilkins of the United States District Court for the District of Columbia vacated the C.F.T.C.'s plan, sending it back to the agency for “further proceedings.”

But in a statement last week, the agency hinted it would plow ahead with the rule.

“I believe it is critically important that these position limits be established as Congress required,” the agency's chairman, Gary Gensler, said in the statement. “I am disappointed by today's ruling, and we are considering ways to proceed.”

One route could lead the agency to appeal to the The United States Court of Appeals for the District of Columbia. Mr. Chilton also urged the agency to seek court approval for enforcing position limits, until the regulator has exhausted its options. The limits were supposed to take effect later this month.

But the agency's chances with th e appeals court are spotty. The court has been unfriendly to financial regulators in the past, throwing out Securities and Exchange Commission rules six times in seven years.

Mr. Chilton suggested a contingency plan: appease Mr. Wilkins.

“We should start drafting yet another rule proposal to address any concerns the court had,” he said. “I am confident we can do so.”