UPDATE 1-U..S swaps watchdog may drop anti-speculation rule appeal
WASHINGTON, Oct 22 (Reuters) - The U.S. derivatives regulator is considering dropping its appeal to defend a rule that would severely limit Wall Street's ability to speculate with commodities, a senior official at the agency said on Tuesday.
The Commodity Futures Trading Commission is putting the final touches on a revised position limits rule even as its lawyers are preparing to defend the original rule that was knocked out by a U.S. court last year.
But with oral arguments in the U.S. District Court scheduled for November, the CFTC needs to decide quickly whether that dual strategy is the best, Commissioner Mark Wetjen told journalists on the sidelines of a lunch event.
"If you're in favor of trying to get (position limits) in place as expeditiously as possible, it shouldn't be a given that you pursue an appeal and you pursue a rulemaking at the same time and that's the outcome you're going to get," Wetjen, a Democrat, said after giving a speech.
"That's not necessarily so. Everyone (at the CFTC) is talking about that very, very intensive right now," he said.
The rule is one of the most controversial parts of the 2010 Dodd-Frank law that aims to prevent a repeat of the financial crisis, and would compound the regulatory troubles facing Wall Street's role in physical commodity markets.
Banks had complained they were facing high costs as a result of the rule because they needed to keep track of commodity positions held by affiliate businesses as soon as they owned more than just 10 percent of the shares.
The CFTC's new rule will contain a better legal justification to conform with the court's ruling that the agency had failed to prove that the limits were needed, and will better weigh the costs and benefits of the rule.
"What's being discussed now is what's the best strategy to get position limits in place as quickly as possible. Is it one track, the appeals track? Is it another track, the rule-making track, or is it a combination of the two?" Wetjen said.
The new rule drops an important irritant for the banks that fought the rule, by allowing an exemption from the limits for companies in which they own up to 50 percent, as long as they can prove they don't control those units.
There is still a consensus within the CFTC to get the position limits in place quickly, Wetjen said, though the introduction will take several more months regardless of whether the regulator pursues its appeal, or reproposes a new rule.
(Reporting by Douwe Miedema; Editing by Leslie Gevirtz and Leslie Adler)