February 8, 2012 / 3:10 AM / 6 years ago

Groups ask court to block CFTC position limit rules

WASHINGTON, Feb 7 (Reuters) - The financial industry asked a federal court late on Tuesday to temporarily block regulations approved by the U.S. futures regulator aimed at preventing excessive speculation in commodity markets such as oil and gold.

The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) told the court if the U.S. Commodity Futures Trading Commission’s rules go into effect they would irreparably harm their members and the public.

In a 50-page filing with the U.S. District Court for the District of Columbia, the groups said unless the court granted a preliminary injunction to delay the rules until the case is decided, the industry would shoulder additional costs that could never be recovered.

In addition, they argued market participants would be forced to forgo trading strategies and their ability to hedge against risks would be damaged.

“A stay will, however, avoid imposing costs that the agency concedes will occur and that a majority of the (CFTC) commissioners determined would harm consumers and the markets as a whole,” the groups told the court.

SIFMA and ISDA members “will experience added costs and irreparable harm each day this rule remains in effect, and there will be no identifiable harm from a stay”, they said.

The CFTC narrowly approved the position limit plan in October by a 3-2 vote, but there was significant internal dissent within the agency on whether the rule was needed.

Most on Wall Street have decried the notion of capping the number of futures and swaps contracts that any single trader could hold. They view the proposal, first made following the commodity spike in 2008, as a misguided political attempt to stem soaring prices.

SIFMA and ISDA sued in December to block the rules, arguing the CFTC exceeded its authority and that they were not adequately justified. Traders also have cried foul, saying the rules were a politically motivated effort to cap prices that will make markets less liquid and more volatile.

The futures regulator was given the authority to impose position limits under the Dodd-Frank financial regulatory overhaul legislation passed in 2010.

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