CFTC Submits Consolidated Reply in Opposition to Market Participants Motion for Summary Judgment

In a development to the lawsuit challenging the CFTC’s Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (the “Cross-Border Rule”), the CFTC submitted a consolidated reply in support of its cross-motion for summary judgment and in opposition to the ISDA, SIFMA and the Institute of International Bankers’ (together, the “Associations”) motion for summary judgment.

In its consolidated reply, the CFTC stated that the Associations’ case “rests entirely on the mistaken premise that Congress required the CFTC to determine the cross-border application of Title VII – without ever saying so in any statute.” According to the CFTC, Congress established a system of swaps regulation in Title VII, including a test for determining when it applies abroad, so that market participants cannot avoid reforms by shifting their swaps activities overseas. The CFTC stated that it has carried out its rulemaking duties under Title VII according to Congress’s design, and has properly considered the costs and benefits of its own actions in accordance with the APA, including relevant comments, and has issued a policy statement (“Guidance”) to inform the public of its views on the meaning and likely application of CEA Section 2(i) (“Jurisdiction of Commission; Liability of Principal for Act of Agent; Commodity Futures Trading Commission; Transaction in Interstate Commerce”) to common swaps activities.

In response to the Associations’ claim that the Guidance is really a set of rules that impose cross-border obligations, the CFTC stated that “the agency reasonably exercised its broad discretion” not to codify its policies through a rulemaking process. Thus, the CFTC stated, it is entitled to judgment as a matter of law, and the Court should grant the CFTC’s consolidated motion to dismiss and “should refuse to upend the Dodd-Frank reforms” as the Associations demand.