The Resolution Law Group: SIFMA, ISDA, and IIB Sue CFTC Over Alleged Unlawful Rulemaking Regarding Cross-Border Rules, Swap Regulations

The Securities Industry and Financial Markets Association, Institute of International Bankers, and Swaps and Derivatives Association, Inc. are suing the US Commodity Futures Trading Commission over rules that they believe are hurting its members’ businesses, which includes among the biggest broker-dealers in the world. The plaintiffs contend that the agency engaged in unlawful rulemaking involving CFTC Interpretive Guidance and Policy Statements about Compliance With Certain Swap Regulations and other cross-border matters. They want the CTFC’s reach in its overseas rules curtailed.

ISDA, SIFMA, and IIB, whose members include swaps dealers such as Deutsche Bank AG (DB), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and many others, want to vacate a number of rules having to due with cross-border application completely. According to Bloomberg.com, at least half the largest banks work with overseas clients in their swaps business. The CFTC approved the overseas swaps guidelines this summer, and last month, two staff opinions came out shedding more light on the breadth of the guidelines.

Now, the plaintiffs are contending that with these rules the CFTC illegally circumvented the Administrative Procedure Act and Commodity Exchange Act by saying its regulations were “guidance,” did not set up cost-benefit analysis even though the law mandated it, performed a rulemaking process that was flawed, and set up rules that contradict international cooperation and could hurt global markets.

The complaint tackles the way agencies establish policies. Formal agency rules typically require commissioner votes and cost benefit-analysis. (Commissioners who vote were selected by the president and received senate confirmation.) The plaintiffs are unhappy because they say that the guidance document that came out about overseas swaps guidelines did not have economic analysis and the two advisories that were issued also lacked this analysis and were never put through a formal vote. They want the court to vacate the CFTC policy.

In a formal press release, SIFMA CEO Judd Gregg, who used to be a US Senator, said his constituents are in favor of regulatory reform that will lead to accountability and transparency in the derivatives market and that the association wants to engage constructively with regulators and for procedures to be fair and open. He called the CFTC’s handling of cross-border regulation “arbitrary… unilateral.. backdoor rulemaking.” Meantime, ISDA chairman Stephen O’Conner said that the CFTC’s current Cross-Border Rule is a “step backward” in attempts to set up a “consistent” vibrant, “global framework” regarding OTC derivatives regulation that gets rid of systemic risk.

Also commenting in the press release, IIB CEO Sally Miller noted that while the banker group’s members have made efforts to comply with CFTC regulations that were not properly adopted, still they are growing concerned with what they believe are the agency’s efforts to use “unpredictable ‘guidance documents.. directives” to regulate the global swaps market.

The Resolution Law Group represents institutional investors and high net worth individual investors in recouping their securities fraud losses.

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