Paper Tiger: The Validity of CFTC Position-Limit Rulemaking Under Dodd-Frank

PdfPDF by Andrew NotiniFebruary-24-2013

Category: Notes, Number 1, Print Edition, Volume 46

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), signed into law by President Barack Obama on July 21, 2010, was Congress’s response to the 2007 global financial crisis.  This crisis was primarily caused by the inflation of the housing bubble along with financial institutions’ risky mortgage lending and securitization practices, leading to a severe liquidity strain and credit crunch among these institutions and a near collapse of the global financial system.  Preceding these events was a period of laissez-faire financial regulation wherein major financial institutions and capital markets were largely left to regulate themselves.  The passage of Dodd-Frank marked a return to strict governmental regulation of both capital markets and large financial institutions for the purpose of re-establishing the financial stability of the United States. . .

The purpose of this Note is to evaluate the effect of recent decisions, especially Business Roundtable, on court challenges to the CFTC regulation concerning position limits for commodity futures and derivatives. Part II.A will briefly discuss the recent history of financial regulation in the United States before exploring the economic circumstances that led to the passage of Dodd-Frank.  Part II.B will discuss the implementation of the Dodd-Frank Act and other legislation that both bolstered and limited the regulatory power of the SEC and CFTC.   Part II.B will also spell out the aforementioned CFTC regulations, including their cost-benefit analysis and justification along with concerns voiced by members of the financial community whom the regulations will affect.  Additionally, Part II.B will explore the recent district court decision remanding the position-limit rule back to the CFTC for further consideration.  Part II.C will dissect relevant court decisions that have invalidated SEC regulations.  Finally, Part III compares the proposed CFTC regulations with those defeated in the courts, and attempts to predict the success or failure of the promulgated rules in a court challenge. . .

Read the full Note here.

Author: Andrew Notini

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