As mounting regulation continues to pile more pressure on institutional investors, unrest has broken out on Wall Street, with a number of buy-side-led lawsuits filed against the Commodity Futures Trading Commission (CFTC).
US buy-side trade body the Investment Company Institute (ICI) and the US Chamber of Commerce yesterday filed a legal challenge to a CFTC rule which means investment funds would need to report to the agency their use of leverage and exposure to counterparty risk.
The two groups have labelled the regulations “redundant” because funds must already file with the Securities and Exchange Commission (SEC) and have accused the CFTC of not adequately investigating the costs or benefits of the rule.
“The rule layers the CFTC’s regulatory regime atop that already applied to funds by the SEC under all the major federal securities laws. The CFTC in its rulemaking process did not remotely justify such regulatory excess,” said ICI president and CEO Paul Schott Stevens. “The rule will impose significant compliance costs on mutual fund advisors and, ultimately, these costs will come out of shareholders’ pockets. Additional cost for no benefit to investors – that’s the wrong outcome.”
In the joint complaint filed with the US District Court for the District of Columbia, the ICI and the Chamber charge that the CFTC’s Rule 4.5 amendment violates the Commodity Exchange Act and the Administrative Procedure Act on multiple counts. Counsel for the claimants said the rule was “arbitrary and capricious”, requesting injunctive relief to prevent the CFTC from implementing the rule.
“The Chamber strongly supports smarter regulation that reduces systemic risk. Unfortunately, the CFTC’s new rule looks more like regulation for regulation’s sake,” said David Hirschmann, president and CEO of the US Chamber’s Center for Capital Markets Competitiveness.
In the past few months, the CFTC has come under fire from a number of lobby groups. In December, sell-side trade body the Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) challenged the CFTC’s power to set position limits to curb speculation commodities markets. In February, the two groups asked the US District Court for the District of Columbia to block and strike down the rule which is due to come into effect as part of the Dodd-Frank Act soon after August, when the agency has finished analysing related swaps data.
Democratic Congressman Barney Frank – one of the co-authors of the act – yesterday submitted a brief to Judge Robert Wilkins, who is hearing the case, defending the rule.