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Footnote 513 – the Empire Strikes Back

A consortium of finance trade bodies have mounted a legal challenge to the CFTC’s Cross-Border Interpretive  Guidance. ISDA, SIFMA and the Institute of International Bankers (IIB) yesterday filed suit in the District of Columbia, alleging that the CFTC:

  • Unlawfully circumvented the requirements of the Administrative Procedure Act and the Commodity Exchange Act by characterizing its regulations as “guidance”;
  • Failed to conduct any cost-benefit analysis, as required by law;
  • Conducted a flawed rulemaking process; and
  • Imposed a series of rules that are contrary to the spirit and the letter of international cooperation and may harm global markets.

The trade bodies only decided to file, following the issuance of interpretive guidance, which confirmed the widest extent of the Agency’s extra-territorial reach, itself subject to no-action relief until 14th January 2014. The complaint alleges that the Guidance amounts to new law and that as such, proper procedures have not been followed. “That was the straw that broke the camel’s back,” said Stephen O’Connor, ISDA’s chairman. Earlier this year, the SEC had a rule on proxy access overturned on broadly similar grounds, the court deciding that there was insufficient cost-benefit analysis.  ISDA and SIFMA are to date the only successful litigants against the CFTC with respect to Dodd-Frank implementation. Readers will recall that last month the CFTC was forced to change a commodity position limits rule after an adverse court decision.

Speaking in Asia, Commissioner Scott O’Malia criticised the advisory as regulatory overreach “The recent footnote 513 interpretation, however, says any role in the US, whether it’s a non-US person or not, somehow makes that a US trade. That’s a new interpretation of cross-border rules – but it’s not what we voted on and doesn’t meet the statutory test.” The uncertainty raised by this legal challenge is only compounded by the imminent departure of three of the five CFTC Commissioners early in the New Year, a sequel to this ongoing story looks very likely.

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