After CFTC loss in court, limits battle could drag on

By Mike Kentz

Oct 4 (IFR) - The Commodity Futures Trading Commission's battle to impose position limits intended to keep speculators from manipulating prices could drag on until at least 2014, after it lost a lawsuit last week.

The US regulator lost almost a year-long court fight to set limits on some kinds of speculative trading, which it argued was distorting market prices.

The CFTC pledged to keep up the campaign to impose the limits, but it is unknown if the agency will file an appeal or undertake the impact study that the court ordered was needed to prove the limits are needed.

"Regardless of CFTC intervention , it appears the market won't see a final position limits rule until 2014," said Sal Gilberte, president of Vermont-based Teucrium, a commodity exchange-traded product dealer, citing discussions with industry lawyers.

"Commodities users and traders can breathe a sigh of relief," he told IFR, nevertheless underlining the continuing uncertainty in the market over the matter.

"No one knows what the CFTC is going to do," he said.

The regulator had argued that Dodd-Frank regulation put in place in the aftermath of the financial crisis required it to set position limits on 28 different kinds of commodities contracts covering everything from soybean oil to platinum.

Position limits are designed to ensure that speculative positions, usually in the former of futures contracts, do not undermine or otherwise interfere with normal price movements in the market.

But two industry groups, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, filed a lawsuit against the CFTC after the new limits were finalized in October 2011.

The groups argued that Dodd-Frank actually mandated the regulator to conduct an impact study to make the case for position limits, and the court agreed.

Last Friday, Judge Robert Wilkins sent the matter back to the CFTC, calling for the study.

CFTC Chairman Gary Gensler said the regulator would "continue forward" with efforts to impose position limits.

In a note to clients this week, law firm Sidley Austin said an appeal "may not be a prudent avenue for the agency to pursue", suggesting there would be no way around the study.

"My sense is that, regardless of the political atmosphere, it is unlikely that the CFTC could push through a rule without an impact study," said Teucrium's Gilberte.

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(Reporting by Mike Kentz; Editing by Marc Carnegie)

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