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Suit Filed Against CFTC

The Investment Company Institute (ICI) and the Chamber of Commerce (Chamber) recently filed a lawsuit challenging the rule adopted by the CFTC that would subject many investment companies to regulation by the CFTC.  The lawsuit argues that the rule should be vacated.

The complaint traces the history of regulation of investment companies by the CFTC.  The complaint notes that in 2003, the CFTC granted investment companies an exemption from registration because investment companies are already highly regulated by the SEC.  In addition, the CFTC also stated that it wanted to remove barriers that could otherwise discourage participation in the commodities markets.

The complaint notes that the new rule establishes thresholds for investment companies that are even stricter than those that the agency eliminated in 2003, without providing any explanation for the change.  The ICI also notes that while investment companies will be subject to the new rule, insurance companies, banks, trust companies, and pension plans still fall under the 2003 exemption, undercutting the CFTC's claim that the rule change would ensure that similar entities are regulated similarly.

According to the complaint, the CFTC justified the rule by saying that it would allow the agency to ensure that registrants meet minimum standards of fitness and competency and allow the CFTC to deal with wrongful conduct.  However, the complaint notes that the CFTC did not address whether similar benefits are already provided under the current regulatory regime and did not identify any wrongful conduct on the part of funds.  Additionally, the CFTC claimed that they could not estimate the burden of complying with the rule because harmonization of CFTC and SEC rules is required (and would be undertaken in a separate rulemaking).

The suit alleges that the court should vacate the rule because the agency "failed to identify a significant benefit, acknowledged that the rule would impose significant costs, and imposed those costs in a manner that made it impossible to evaluate the full extent of the costs before the rule's adoption." 

A copy of the complaint is available here: