D.C. Circuit Court Upholds CFTC Registration for Investment Companies
The U.S. Court of Appeals for the D.C. Circuit ruled in favor of the Commodity Futures Trading Commission by upholding its new rules that will require many investment companies to register as commodity pools. Rejecting an appeal brought by the Investment Company Institute and affirming the lower court’s ruling, the Court held that the CFTC met its regulatory obligations when promulgating the rule by analyzing the costs and benefits and providing sufficient notice and opportunity to comment. The Court opined that an agency had a “low bar” when justifying proposed regulations and a “reasoned explanation,” which the CFTC provided, would suffice. The Court also said that the CFTC did address the costs and benefits of the proposed rule changes. The Court stated that it would “be quite literally impossible to calculate the costs of an unknown regulation” and that the “law does not require agencies to measure the immeasurable.” The agency need only “consider and evaluate potential cost and benefits.” In several places, the Court dismissed the ICI’s arguments as policy disagreements.
OUR TAKE: The new rules subjecting many registered funds to CPO registration are effective. Firms should not ignore compliance on the hope that the ICI will try to appeal to the Supreme Court, the Supreme Court will even hear the case, and then the Court will reverse two concurring lower court opinions.