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Judge throws out CFTC's position limits rule

Section: Daily Dispatches

By Alexandra Alper and Karey Wutkowski
Friday, September 28, 2012

WASHINGTON -- A federal judge handed an 11th-hour victory to Wall Street's biggest commodity traders today, knocking back tough new regulations that would have cracked down on speculation in energy, grain, and metal markets.

Judge Robert Wilkins of the U.S. District Court for the District of Columbia threw out the U.S. Commodity Futures Trading Commission's new position limits rule and sent the regulation back to the agency for further consideration.

Wilkins ruled that, by law, the CFTC was required to prove that the position limits in commodity markets are necessary to diminish or prevent excessive speculation.

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He also ruled that the amendments to the 2010 Dodd-Frank financial oversight law "do not constitute a clear and unambiguous mandate to set position limits, as the commission argues."

The ruling is a major victory for traders just two weeks before parts of the new position limits rule were scheduled to go into effect.

The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association brought the suit against the CFTC, arguing that the regulations would force their members to drastically alter their businesses, cost them tens of millions of dollars, and send customers fleeing.

Wall Street has also long argued that regulators have not proven that position limits would curb speculation in markets and prevent disruptive price spikes.

The CFTC and industry groups that brought the suit did not immediately have comment.

The agency passed the position limit rule last year, in a bid to limit the number of contracts traders can hold in 28 commodities, including oil, coffee, and gold.

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Statement by CFTC Commissioner Bart Chilton
on Ruling to Vacate Position Limits Rule

Friday, September 28, 2012

This is obviously tough news for those of us who believe there's too much speculative concentration in commodity futures and swap markets. While I respect the judgment of the court, there's no question that huge individual trader positions have the potential to influence prices in a way that hurts legitimate hedgers and ultimately consumers.

I will continue to push hard for a position limits rule, as mandated by Congress. This is clearly a setback but we can learn from it and continue this critical effort to help make our markets safe and fair.

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