The U.S. Court of Appeals for the District of Columbia Circuit decided in favor of the Commodity Futures Trading Commission (CFTC) on June 25, upholding a 2012 rule that imposed new registration and reporting requirements on certain commodity pool operators and commodity trading advisers.
Under the rule, advisers to mutual funds and exchange-traded funds need to register with the CFTC if their commodity trades, including futures, swaps and options, exceed certain thresholds, with the exclusion of pure hedges.
The U.S. Chamber of Commerce and the Investment Company Institute (ICI) claimed that registration with the CFTC duplicated the already existing requirement that they register with the Securities and Exchange Commission. However, the court ruled that the CFTC needs information from the funds in order to regulate commodity markets.
In an appeal filed in December, the ICI and the Chamber of Commerce protested what they said would be an overlapping, potentially conflicting regulatory regime. Additionally they claimed that the CFTC’s rulemaking was capricious, thereby violating the Administrative Procedure Act.
The U.S. District Court ruled in response to this claim that, “an agency changing course need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better.”
The U.S. District Court held that the CFTC met its regulatory obligations with its new rulemaking and adequately assessed the costs and benefits of the proposed rule changes. The Court stated that it would “be quite literally impossible to calculate the costs of an unknown regulation” and that the “law does not require agencies to measure the immeasurable.”
The ruling is a victory for U.S. regulators, who have faced a series of legal challenges since they started writing rules to implement the 2010 Dodd-Frank financial overhaul.