Judge strikes down trading rule

Wall Street notched another victory in the battle over regulation Friday after a federal judge struck down a central piece of the Obama administration’s financial overhaul.

The court decision dealt the latest blow to the Dodd-Frank Act, the regulatory crackdown passed in response to the financial crisis. The decision Friday, aimed at the Commodity Futures Trading Commission’s “position limits rule,” is the second time a Dodd-Frank rule has suffered legal defeat.

The agency adopted the rule last year to place new restrictions on speculative trading, capping the number of derivatives contracts a trader can hold on certain commodities. The agency aimed to rein in trading blamed for inflated prices at the gas pump and the grocery store.

The future of the rule is uncertain. Judge Robert Wilkins of the U.S. District Court for the District of Columbia vacated the rule, sending it back to the agency for “further proceedings.”

But in a statement Friday, the agency hinted it might appeal the court decision.

“I believe it is critically important that these position limits be established as Congress required,” the agency’s chairman, Gary Gensler, said in a statement Friday. “I am disappointed by today’s ruling,and we are considering ways to proceed.”

The case stems from a lawsuit that two Wall Street trade groups filed late last year. The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association complained that the agency erred in writing the rule, saying it would have had the unintended effect of causing wild price swings.

In a joint statement, the groups said they were “pleased with today’s ruling” but are “committed to working with the commission and other regulators to promote safe, efficient markets.”

The ruling is sure to embolden Wall Street as it shifts the attack on Dodd-Frank from piecemeal lobbying to broader legal challenges. Industry groups are challenging another agency rule, while others are weighing lawsuits against the Volcker Rule, astill-uncompleted plan to stop banks from trading with their own money.

Companies have seen some success. A federal appeals court last summer struck down the Securities and Exchange Commission’s proxy access rule, a Dodd-Frank policy that would have empowered shareholders to oust company directors. The court, which also would hear an appeal to the position limits rule, is friendly turf for Wall Street, tossing out SEC rulessix times in seven years.

The Commodity Futures Trading Commission, fearful of legal challenges, delayed its position limits rule on multiple occasions. It also tamed parts of the plan to accommodate concerns from traders.

But the concessions failed to placate Wall Street. The two trade groups point to the fine print of Dodd-Frank, saying the law leaves it to regulators to enforce position limits only “as appropriate.” The groups argue that the law, in essence, required regulators to determine whether limits are necessary and appropriate before creating them.

For its part, the agency argued that Congress gave it no choice but to impose position limits.

Wilkins vacated the rule, saying the agency did not have a clear mandate to set position limits. But it was unclear whether he agreed with Wall Street’s arguments. In a ruling Friday, the judge said the central question in the case is whether Dodd-Frank “clearly and unambiguously” requires the agency to conclude the limits are necessary before imposing them. “The answer is yes.”

The judge appeared to contradict himself elsewhere in the ruling. “Ultimately, however, this court need not choose between the competing interpretations,” he wrote, because the law “is ambiguous as to the precise question at issue.”