Legal Challenges to Derivatives Rules Worries Regulators

Legal Challenges to Derivatives Rules Worries Regulators



The Commodity Futures Trading Commission is moving to protect dozens of derivatives regulations from legal challenges. According to an agency official, this developed after a federal appeals court nullified a new rule for corporate America.

A Republican member of the commission, Scott O’Malia, said that his agency is recasting its so-called position limits regulation, to account for the economic impact on the financial industry. The United States Court of Appeals for the District of Columbia Circuit rejected in July the Securities and Exchange Commission’s so-called proxy access rule, reprimanding that agency for its failure to evaluate the economic effects of the rule.

In a speech given during the annual conference of the International Swaps and Derivatives Association in New York on Tuesday, Mr. O’Malia said, “That ruling sent a wake-up call. We are trying to do better in our rule-making.”

However, he warned that the cost-benefit analyses of the commodity trading commission were still not up to snuff. He said, “We’re not there yet.”

The new rules stemmed from the Dodd-Frank Act, which was passed after the credit crisis and is meant to launch a financial regulatory overhaul. According to people familiar with the matter, for the past several weeks since the decision of the appellate court was handed down, industry associations such as the United States Chamber of Commerce have been scrutinizing legal challenges to other vital components of the Dodd-Frank Act.

One likely target is the position limits plan, which seeks to rein in speculative trading on over 20 commodities. In March, the commodity trading commission was urged by the Futures Industry Association to junk its position limits plan, saying that it “may be legally infirm.”