Dodd-Frank Does Regulate Oil Speculation -- But The Financial Industry Is Suing To Block It
Research ››› ››› TERRY KREPEL
Fox News commentators have attacked the Dodd-Frank financial regulation law by falsely suggesting that it doesn't address oil speculation. In fact, Dodd-Frank does address speculation, and regulations on oil speculation have been issued. However, financial industry groups are suing to block them.
Fox Commentators Attack Dodd-Frank For Purportedly Failing To Crack Down On Oil Speculation
Fox News Contributor Mary Katherine Ham: Dodd-Frank "Was Supposed To Solve All These Speculation Problems." From the April 18 edition of Fox News' Happening Now:
HAM: [A]gain, follow the president's logic here. They passed Dodd-Frank -- it was supposed to solve all these speculation problems. They have a Commodity Futures Trading Commission -- it's supposed to catch all these problems. It didn't catch MF Global. And then in the end, they say, "Hey, we suck at our jobs, give us 52 million more dollars." [Fox News, Happening Now, 4/18/12]
Public Notice's Gretchen Hamel: Dodd-Frank Speculation Rules Are "Not Working." From the April 18 edition of Fox News' America's Newsroom:
HAMEL: We've been told time and time again that speculators have a -- have affecting prices. But Dodd-Frank was actually supposed to fix this problem. They promised us that Dodd-Frank would fix this problem of speculation affecting prices. In fact, it even gave a government board the power to regulate prices. But it's not working. And why is that? Because oil prices are not affected by speculation. They are affected by supply and demand, volatility in the Middle East, and emerging economies like China. [Fox News, America's Newsroom, 4/18/12]
In Fact, Dodd-Frank Does Include Rules On Speculation; Financial Industry Is Suing To Block Them
Commodity Futures Trading Commissioner calls out industry's obstructionism
CFTC Commissioner Chilton On Fox: "The Wall Street Banks ... Have Taken Us To Court, Tried To Stop Us." From an interview with CFTC commissioner Bart Chilton on the April 13 Fox News special Paying at the Pump:
CHILTON: But what I think we need to do, and what Congress told us to do, was to put caps on speculation, to limit the speculation to 10 percent of a market. I mean, who needs to control more than 10 percent of a market? And unfortunately, the Wall Street banks, Eric, have taken us to court, tried to stop us. Meanwhile, consumers and businesses alike are paying more than they should at the pumps. [Fox News, Paying at the Pump, 4/13/12]
Chilton: Financial Industry Uses Threat Of Lawsuits To Prevent Implementation Of Dodd-Frank. From a March 18 Bloomberg News article:
Wall Street banks are using the threat of lawsuits to prevent regulators from writing rules mandated by the Dodd-Frank Act, said Bart Chilton, a Democrat on the U.S. Commodity Futures Trading Commission.
"Some regulators live in constant fear and are virtually paralyzed by the threat" that they will face "spuriously" filed suits alleging that the costs and benefits of their rules weren't adequately considered, Chilton said in a speech prepared for the Trade Tech 2012 conference today in New York. "It is a bastardization of the conduct and use of cost-benefit analyses in regulatory rulemaking."
The CFTC is defending against a challenge filed last year in federal court that the agency overstepped its authority under the Dodd-Frank Act and inadequately assessed the costs of new limits on speculation in oil, natural gas and other commodities. The lawsuit was filed by the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association. [Bloomberg.com, 3/8/12]
CFTC approved regulations in October, and financial industry sued in December
October 2011: Commodity Futures Trading Commission Authorizes New Regulations. From The Hill:
A divided Commodity Futures Trading Commission voted along party lines Tuesday to impose new restrictions on speculative trading in energy futures markets.
The rules, required under last year's Dodd-Frank law, are aimed at reigning in speculative Wall Street trading that some allege has driven up oil prices and worsened market volatility in recent years.
The rules impose "position limits" on the amount of futures and swaps contracts for oil and other commodities that traders hold. [The Hill, 10/18/11]
December 2011: Financial Industry Groups Sue To Block Regulations. From a Securities Industry and Financial Markets Association press release:
The International Swaps and Derivatives Association, Inc. (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) today filed a legal challenge to the Commodity Futures Trading Commission's (CFTC) final rules that limit the positions that investors may own in certain commodities. The Associations believe that the Position Limits Rule may adversely impact commodities markets and market participants, including end-users, by reducing liquidity and increasing price volatility. In addition, the Associations contend that the CFTC's decision-making process in enacting the Rule was procedurally flawed. Among other deficiencies, the CFTC adopted the Rule without making findings as to the necessity and appropriateness of the position limits, as required by statute. Furthermore, the CFTC failed to conduct any meaningful cost-benefit analysis and lacked a reasoned basis for its rule. [Securities Industry and Financial Markets Association, 12/2/11]
January 2012: CFTC Votes To Apply Rules While Lawsuit Continues; Industry Groups File Motion To Oppose. From The National Law Review:
On January 4, the CFTC voted along party lines, again, not to delay implementation of the rule until the legal challenge is resolved. The CFTC also filed a motion to dismiss for lack of subject matter jurisdiction at the circuit court arguing that the relevant statutes do not provide for direct appellate review and that the case should be heard first in district court. On January 9, the trade groups filed a motion requesting that the circuit court stay the effective date of the rule while the litigation is pending. [The National Law Review, 1/16/12]
January 2012: Appeals Court Dismisses Industry Group's Challenge. From HedgeWorld Daily News:
A U.S. appeals court has dismissed a lawsuit by the financial industry challenging new federal regulations aimed at cracking down on speculation in commodities markets, a move that will likely delay a decision over whether the rules pass muster.
The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association in December filed challenges to the regulations adopted last year by the Commodity Futures Trading Commission.
The U.S. Court of Appeals for the District of Columbia Circuit dismissed the lawsuit saying that the case must first be heard by a lower court - an argument advanced by the CFTC. [HedgeWorld Daily News, 1/23/12, via Nexis]
February 2012: Industry Groups Re-File Case In District Court. From Reuters HedgeWorld:
The financial industry asked a federal court late on Tuesday [February 7] 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 and the International Swaps and Derivatives Association 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. [Reuters HedgeWorld, 2/8/12, via Nexis]
Febraury 2012: Judge Rejects Preliminary Injunction, But May Still Rule Against Regulations. From a February 27 McClatchy Newspapers article:
A federal judge on Monday refused to halt efforts by a key regulator to limit excessive speculation in the trading of oil contracts -- which is driving up oil and gasoline prices -- but hinted that he might soon rule in favor of Wall Street and let speculation go unchecked.
Robert Wilkins, a judge on the U.S. District Court for the District of Columbia, declined a request for a preliminary injunction to halt the Commodity Futures Trading Commission from implementing a congressional mandate to limit how many oil contracts any single financial speculator or company can control.
However, Wilkins told both the CFTC and lawyers for the Securities Industry and Financial Markets Association and the International Swap and Derivatives Association that he expected to make a ruling soon on whether to hear the case. His line of questioning left both sides with the impression that he was concerned about how the regulatory agency has proceeded.
The two influential lobbies for Wall Street sought the injunction hoping to thwart what are called "position limits," which were ordered by Congress as part of the landmark Dodd-Frank Act in 2010. The act was the broadest revamp of financial regulation since the Great Depression. The limits sought to prevent excessive speculation not just in oil but across the broad range of commodities, including farm products and metals. [McClatchy Newspapers, 2/27/12]
If Regulations Are Upheld, They Can Take Full Effect In June. A CNN Money report stated: "Even if Wall Street loses in court, the new position limit rules can't take full effect until two months after the agency has issued a definition of what qualifies as a swap, which is due out in April." [CNNMoney, 2/27/12]