This past week two commodity regulatory announcements occurred. On September 28th, a U.S. District Court judge for the District of Columbia (the "DC District Court") struck down the Commodity Futures Trading Commission's (the "CFTC") position limits rule ("Position Limits Rule"), which would have placed a ceiling on derivative contracts related to 28 physical commodities. That same day, the American Securitization Forum (the "ASF") said that it may be making headway toward an exemption for the securitization industry from the CFTC's regulatory regime.
The CFTC adopted the Position Limits Rule by a vote of 3 to 2 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). The Position Limits Rule was expected to go into effect in approximately two weeks. International Swaps and Derivatives Association (the "ISDA") and Securities Industry Financial Markets Association ("SIFMA") filed suit against the CFTC generally alleging that the CFTC did not adhere to its statutory authority under the Commodity Exchange Act (the "CEA"). In a 43 page opinion, the DC District Court agreed with ISDA and SIFMA and vacated the Position Limits Rule and remanded it back to the CFTC where the agency may propose the rule again in accordance with the DC District Court's Opinion. According to FT.com, CFTC Chairman Gary Gensler ("Chairman Gensler") said, "The rule addresses Congress' concern that no single trader is permitted to obtain too large a share of the market and that derivatives markets remain fair and competitive. I believe it is critically important that these position limited be established as Congress required…I am disappointed by today's rulings, and we are considering ways to proceed."
The ASF made its anticipatory announcement during an ASF members' update call held last Friday. The ASF has been meeting with the CFTC to find common ground for participants in the securitization industry to find relief from the CFTC regulatory regime in the wake of the Dodd-Frank Act's changes to the CEA. The Dodd-Frank Act's modifications to the CEA, specifically relating to swaps, could cause traditional securitization vehicles to fall within the definition of a commodity pool. According to the ASF, the CFTC seems to agree that "traditional securitization" products are not supposed to be covered by the recent changes to the CEA. Nevertheless, the CFTC continues to be very concerned that an exemption for securitizations could potentially create a loophole from its regulatory oversight for other products that should be covered. The ASF remains hopeful that the CFTC will issue preliminary relief via a no-action letter on or prior to October 11th, with an exemptive order to follow in the future.