The groups accused the CFTC in their lawsuit of avoiding a rigorous
rulemaking process, tacking changes on to the guidelines without
seeking public input, and failing to study economic impacts of the
regulation and its costs to industry.
They also said the lawsuit aims to stop the CFTC from what they
described as an "unceasing effort" to seize authority over the
global swaps market by publishing hasty, unpredictable advisory
documents instead of issuing formal rules.
"This action, which has been taken so far outside the bounds of
normal regulatory course ... needs to be addressed through the court system,"
Judd Gregg, chief executive of the Securities Industry and Financial Markets
Association, told Reuters.
SIFMA, the International Swaps and Derivatives Association and the
Institute of International Bankers filed the suit in
U.S. District Court for the District of Columbia.
A spokesman for the CFTC did not have an immediate comment.
The CFTC, the nation's top swaps regulator, was required by the 2010
Dodd-Frank law to write dozens of rules bringing the $630 trillion
market under federal oversight for the first time. Regulators were
also instructed to determine how their rules should apply to U.S.
companies with operations overseas.
The issue sparked a trans-Atlantic conflict with banks and European
regulators who did not want companies to have to comply with both
U.S. and foreign rules.
Complicating matters, the U.S. Securities and Exchange Commission,
which oversees a small portion of the swaps market regarding
equities and some credit instruments, has taken a different
approach. It is pursuing a formal rule that will govern how its
regulations apply across the globe.
The CFTC gave final approval in July to guidance that would
generally let the overseas branches of U.S. banks follow foreign
swaps regulations, as long as they are roughly comparable to U.S.
The guidance was subjected to public comment and approved by the
commission, with Republican Commissioner Scott O'Malia dissenting.
But the groups challenging the guidance said they were alarmed by
follow-up "advisories" issued by CFTC staff at the request of
Chairman Gary Gensler, a Democrat. Those were not released for
comment beforehand or voted on publicly.
Two advisories, issued on Nov. 14 and 15, greatly expanded the
scope of the CFTC's rules to include swaps that were negotiated in
the United States, even if the trades were booked offshore and
outside of the U.S. marketplace.
The trade groups said the change would be costly for firms that were
complying with an earlier interpretation of the rules and should
have gone through the full public comment process.
[to top of second column]
"This lawsuit comes in direct response to Chairman Gensler's
decision to ignore the rule of law and disregard long-established
procedures at the CFTC for adopting new rules," Republican
Representative Frank Lucas, who chairs the House of Representatives'
agriculture committee, said in a statement.
Should the challenge prevail, it could detract from Gensler's legacy
as chairman. His term ends on Jan. 3.
He has gained a reputation as an especially aggressive financial
regulator in his push to finalize tough interpretations of new
regulations required by Dodd-Frank.
The lead attorney representing the trade groups, Eugene Scalia of
Gibson Dunn & Crutcher, has a track record of often winning legal
challenges to Wall Street regulations.
The CFTC has had mixed success in defending against legal challenges
during Gensler's tenure.
The agency lost one case filed by SIFMA and ISDA against a set of
rules to rein in how banks and other large traders place bets in the
But it has successfully beaten back other challenges, including one
filed against the agency by Bloomberg LP over derivatives rules and
another lawsuit filed by industry groups that targeted fund
Joel S. Telpner, a partner at law firm Jones Day, said the court may
wish to take a narrow approach to the challenge to avoid creating
"It creates somewhat of a challenge or dilemma for the court on
having to face the reality that if they throw out the cross-border
guidance at this point, how does it impact all of the other rules
that were issued?" he said.
The court may focus on just the procedural issue of whether the CFTC
should have issued formal rules rather than guidance, he said, to
avoid creating ambiguity about whether the cross-border requirements
[By Emily Stephenson and Sarah N.
Lynch © 2013 Thomson Reuters. All
(Reporting by Emily Stephenson and Sarah N. Lynch; Editing by Karey
Van Hall, Tim Dobbyn and Andre Grenon)
Copyright 2013 Reuters. All rights reserved. This material may not be published,
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