The U.S. Court of Appeals for the D.C. Circuit has upheld a Commodity Futures Trading Commission rule change requiring some investment advisers to mutual funds to register as commodity pool operators. Investment Company Institute v. CFTC, No. 12-5413 (June 25, 2013). The unanimous ruling by Senior Circuit Judge Sentelle was largely expected after oral argument in early May, when all three judges seemed quite skeptical of the arguments made by the rule's challengers.
The plaintiffs contended that the CFTC violated the Administrative Procedure Act by (1) failing to address its own 2003 rationales for broadening CPO exemptions; (2) failing to comply with the Commodity Exchange Act and offering an inadequate evaluation of the rule's costs and benefits; (3) failing to justify certain particular provisions of the rule; and (4) failing to provide an adequate opportunity for notice and comment. The court's opinion systematically rejected all of these contentions, generally ruling that the CFTC provided adequate justifications and did not act arbitrarily or capriciously.
The plaintiffs relied in part on the theory that the CFTC, by engaging in a multi-step rulemaking with some regulations becoming final now and other regulations becoming final only after harmonization with SEC regulations, made it impossible to determine the costs and benefits of its rule. The court ruled that the CFTC was permitted to move in an incremental manner, and it would be quite literally impossible to calculate the costs of an unknown regulation. It agreed with the district court that the time for any challenge to any new compliance obligations is when the final harmonization rule has been released and the nature of those obligations is clear.
The court's opinion is available online at
For my post on the district court opinion, see
John M. Baker <JMB@...>
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