* Better Markets group files brief supporting curbs
* Says CFTC fulfilled cost-benefit requirements
* CFTC's position limits face suit by ISDA, SIFMA
WASHINGTON, April 23 (Reuters) - Financial reform advocacy group Better Markets filed a friend-of-the-court brief on Monday in defense of a new rule curbing speculation in commodities markets that has been challenged by an industry lawsuit.
The U.S. Commodity Futures Trading Commission in October finalized the rule included in the 2010 Dodd-Frank financial oversight law to limit the number of contracts any trader can hold in certain commodities like gold and oil.
But financial industry groups have sued to stop the rules from taking effect, saying the curbs would irreparably harm the marketplace and arguing that the CFTC failed to sufficiently weigh the economic consequences of the rule, as is required by law.
The Commodity Exchange Act (CEA) requires the CFTC to "consider the costs and benefits of the action of the commission." It goes on to clarify that the agency must weigh the protection of market participants and the public, the efficiency and competitiveness of futures markets, and price discovery, among other issues.
Better Markets said in its legal brief that the agency's main function is to protect the public and it is not obligated by law to "compare or quantify" costs and benefits.
"The CFTC must be guided by the dictates of the public interest, not the burdens of regulation on industry," it wrote.
Congress, in drafting the CEA, did not want its regulatory goals to be impeded by "exhaustive, broad or particularized cost benefit analysis", Better Markets argues.
The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) challenged the rule in December.
In their suit, they argue that the agency violated the CEA by drafting a rule that would seriously impair the efficiency of markets in establishing commodity prices, and require market participants to spend lots of money redesigning trading strategies and building new compliance infrastructure.
"Rather than making a genuine effort to estimate those costs, the Commission cited its own failure to obtain empirical data that would enable it to assess the impact" of the rule, they wrote.
The debate over position limits has been heavily politicized. Some lawmakers had pushed for the CFTC to clamp down since early 2008, as oil and grain prices were shooting toward historic peaks.
In recent weeks, Senate and House Democrats have filed briefs in support of the agency's rules. Senator Bill Nelson separately asked President Barack Obama to consider not reappointing CFTC Chairman Gary Gensler if he fails to put the rules in place soon.
However, traders and some Republican lawmakers have argued there is no evidence speculators inflate prices, and say curbs could make prices more volatile by removing liquidity and sending business to overseas markets.
The CFTC's position limits rule was narrowly approved Oct. 8 in a 3-2 vote, with both Republican commissioners voting against the measure.
The rules are set to go into effect later this year.
The quality of economic analysis has been a weak point for another regulator, the Securities and Exchange Commission.
Last year, an appeals court struck down an SEC rule that would have made it easier for shareholders to nominate directors to corporate boards, saying the SEC failed to properly weigh the economic consequences of the rule. (Reporting By Alexandra Alper; Editing by Tim Dobbyn)