On June 25, 2013, the U.S. Court of Appeals for the District of Columbia Circuit affirmed the district court ruling in Investment Company Institute et al. v. Commodity Futures Trading Commission (CFTC). The plaintiffs in the case, the ICI and the U.S. Chamber of Commerce, challenged amendments to Rule 4.5 under the Commodity Exchange Act (CEA), which sets forth the conditions pursuant to which a registered investment company may claim an exclusion from the definition of “commodity pool operator,” and amendments to Rule 4.27. The plaintiffs alleged that the rulemaking process did not meet the standards set forth in the CEA relating to cost-benefit analysis and was arbitrary and capricious under the Administrative Procedures Act (APA).

On December 12, 2012, the U.S. District Court for the District of Columbia denied the plaintiffs’ motion for summary judgment, granted the CFTC’s motion to dismiss in part and granted the CFTC’s cross-motion for summary judgment. The plaintiffs appealed the ruling granting summary judgment to the CFTC. In affirming the district court, the D.C. Circuit found the following:

  • The CFTC engaged in “reasoned decision-making” and provided an adequate basis for the shift in its views from the 2003 amendments to Rule 4.5; 
  • The CFTC considered the costs and benefits as required and the CFTC’s cost-benefit analysis was not arbitrary and capricious;
  • Three specifically challenged provisions—the inclusion of swaps in the registration threshold, the exclusion of risk management strategies from the definition of “bona fide hedging transactions” and the 5% registration threshold itself—were sufficiently explained such that the CFTC’s actions were not arbitrary and capricious; and 
  • The CFTC provided “adequate opportunity for notice and comment,” satisfying the requirements of the APA.