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From Securities Regulation Daily, April 23, 2013

Dodd-Frank's Legislative History Requires Commodity Position Limits, Senators Argue

By John M. Jascob, J.D.

The legislative history of the Dodd-Frank Act requires the CFTC to set position limits as to certain commodities, 19 senators have argued. In an amicus brief filed with the United States Court of Appeals for the District of Columbia Circuit, Senator Carl Levin (D-Mich) and other key members of Senate oversight committees contended that Dodd-Frank was designed and intended to make position limits mandatory after seven years of Senate investigations had found excessive speculation in the commodities markets and had called for a more aggressive response from the CFTC. Accordingly, the senators urged the court to reverse the district court's decision striking down the CFTC's position limits rule and to grant summary judgment in favor of the CFTC (International Swaps and Derivatives Assoc. v. CFTC, April 22, 2013).

Statutory text. The text of the Dodd-Frank Act shows a clear intent to require, and not merely to authorize, the CFTC to set position limits as to "agricultural" and "exempt" commodities, the senators argued. When read together as a whole, Dodd-Frank's provisions create a shift from a regulatory regime in which discretionary agency action was a prerequisite to establishing government-imposed position limits to one in which CFTC-imposed position limits are the regulatory norm for these commodities. Congress’ intent to require position limits is reflected in the use of the mandatory "shall" in Section 6(a)(2), the senators stated, as well as by the provision’s repeated references to position limits as "required." Moreover, Congress chose to direct the CFTC to establish position limits within a set period, and chose to do so unconditionally. The reading of the statute suggested by the appellee industry associations would nullify all of those deliberate choices by Congress, the senators contended.

Legislative intent. The development of the Dodd-Frank bill over several drafts also demonstrates Congress’ intent to make position limits mandatory, the senators argued. Although the language in the first bill that was introduced in the House was consistent with the industry associations'view that position limits were discretionary, by the time the bill passed the House it had been modified in two significant ways, primarily by an amendment introduced by Rep. Collin Peterson (D-Minn). First, the House changed the permissive "may" to "shall" in the aggregation provision, thereby requiring the CFTC to aggregate positions across markets. Second, the House added two entirely new subsections, supplementing the statute’s general grant of authority by providing that, in the case of "agricultural" and "exempt" commodities, the CFTC was mandated to act and not merely permitted to do so.

At each step in the legislative process, the senators contended, Congress made the position limits requirement stronger. The provision started with permissive language, which the House made mandatory when it adopted the Peterson amendment. Then, when faced with a choice between the House bill and a less detailed Senate bill that lacked deadlines for the establishment of position limits and contained no accountability mechanism to assess the limits’ effectiveness, the Conference Committee chose the House language and further clarified that the position limits were "required."

Necessity finding not required. The senators also urged the appellate court to reject the industry associations'contention that Congress intended the CFTC merely to gather evidence relating to whether excessive speculation was harming commodity markets and to only impose position limits upon a finding of necessity. The senators found the industry associations’ position impossible to square with nearly a decade of legislative studies leading up to Dodd-Frank. These studies concluded that excessive speculation in the commodities markets distorts prices, increases volatility, and increases costs and risks for consumers. In the wake of these findings, the industry associations'suggestion that Congress wanted the CFTC to do no more than "consider" position limits and conduct duplicative studies rings hollow, the senators stated. Rather, the only conclusion consistent with the statutory language and legislative history is that, having determined that the level of speculation in the commodities markets was excessive and that position limits were too often missing, Congress directed the CFTC to impose mandatory position limits within a specified time period, and to report back to Congress within twelve months on any resulting effects.

The case is No. 12-5362.

Attorneys: Leon Dayan and Zoe L. Palitz (Bredhoff & Kiaser, P.L.L.C.) for Senators Levin, Begich, Blumenthal, Boxer, Sherrod Brown, Cantwell, Cardin, Feinstein, Harkin, Manchin, McCaskill, Menendez, Mikulski, Bill Nelson, Sanders, Shaheen, Warren, Whitehouse, and Wyden as Amici Curiae in support of Commodity Futures Trading Commission.

MainStory: TopStory CommodityFutures DoddFrankAct CFTCNews DistrictofColumbiaNews

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