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CFTC free to cross the borders

A critical legal challenge to the Gensler-era CFTC was decided Tuesday, in a resounding victory for the agency. Judge Paul Friedman rejected arguments by three trade bodies[1] that the CFTC had overstepped its authority in extending the extra-territorial reach of its swaps rules. His 92 page opinion is decisive-

The challengers “merely seek to delay the inevitable”

“The majority of the plaintiffs’ claims fail because Congress has clearly indicated that the swaps provisions (in the 2010 Dodd-Frank Wall Street Reform Act), including any rules or regulations prescribed by the CTC- apply extraterritorially”

Vacating the rules would be “unnecessarily disruptive to the CFTC’s mission and the purposes of the Dodd-Frank Act”

Judge Friedman declined to comment on the CFTC’s controversial practice of ruling by guidance, bypassing formal administrative and legislative procedures. He ordered the Agency to consider the cost-benefit analyses of 10 rules, while leaving them intact.

Chairman Timothy Massad (unsurprisingly) said, “”I am pleased the court…rejected a sweeping injunction of the rules that are at the heart of Dodd-Frank’s overhaul of the swaps markets”.

The decision is a vindication of both the CFTC’s philosophy and method; given the strength of the plaintiff’s case, it is also a surprising one, perhaps motivated more by pragmatism than jurisprudence. A win for the plaintiffs would have thrown a substantial portion of the Agency’s rules into a legal abyss. While it would have been a daunting task to remake the house that Gensler’s Guidance built, it may have made sense in the longer term. Both parties have 60 days to appeal, the trade bodies are unlikely to pursue such expensive diminishing returns; the next front in the cross-border saga will focus on legality of enforcement.



[1] The Securities Industry and Financial Markets Association (SIFMA), the International Swaps and Derivatives Association (ISDA) and the Institute of International Bankers (IIB) as plaintiffs in- Securities Industry and Financial markets Association et. al vs. CFTC, case 1:13-cv-01916-PLF, District of Clombia

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