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Friday, October 05, 2012

The CFTC Should Be Scared

News summary by MFWire's editors

The Commodity Futures Trading Commission struggles to recover from a staggering loss in its efforts to pass regulations governing investment funds. Too bad they're up against Eugene Scalia of Gibson Dunn, the industry's go-to dark knight for challenging financial policy.

He's repping the Investment Company Institute and the U.S. Chamber of Commerce today in court to fight against a rule that would require advisors of mutual funds and ETFs to register with the CFTC depending on the occasion, reports Reuters. These situations include instances where funds' non-hedging commodity trades exceed certain thresholds.

The rule came to fruition at the behest of the self-regulatory National Future Association, which expressed concern that certain funds were exploiting SEC regulations to market managed futures strategies and escaping proper regulatory oversight. Meanwhile, ICI and the Chamber of Commerce argue that the measure duplicates mutual fund regulations already put in place by the SEC.

Two main issues for the CFTC:

This latest fight comes just one week after it had its first rule ever tossed out. The "position limits" rule is a reform that was included in the 2010 Dodd-Frank financial reform law in response to gasoline price concerns. However, U.S. District Court Judge Robert Wilkins had ruled that Dodd-Frank did not give the agency a "clear and unambiguous mandate" to set position limits without showing they were necessary.

Plus, if the CFTC loses their case today, that ruling could be used to fend off a number of other reforms.

Be afraid, be very afraid, experts say.

"The CFTC and the SEC are still struggling with how to get the cost-benefit analysis done in ways that will satisfy the courts," Geoffrey Aronow, a partner at Bingham McClutchen who previously served as enforcement director for the agency, told Reuters. "I am sure any agency in this uncertain area can't be highly confident." 

Edited by: Irene Park

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