UNITED STATES OF AMERICA

Before the

COMMODITY FUTURES TRADING COMMISSION

Motion of ISDA and SIFMA for a

Stay of the Effective Date of the

Position Limits Rule

ORDER

Upon consideration of the December 12,2011 motion ofISDA and SIFMA ("Movants")

for a stay of the effective date of the Position Limits Rule pending judicial review, the

Commission having considered Movants' request for a stay under 5 U.S.C. § 705 and the

standard set forth in Winter v. Natural Resources Defense Council, 555 U.S. 7, 20 (2008), the

Commission denies the motion.*

Issued in Washington, DC, this 3rd day ofJanuary, 2012

by the Commission

~aDavid A. Stawick

Secretary ofthe Commission

*Commissioners Sommers and O'Malia dissent from the denial ofthe motion.
COMMODITY FUTURES TRADING COMMISSION

POSITION LIMITS FOR FUTURES AND SWAPS

FINAL RULE AND INTERIM FINAL RULE

RIN 3038~AD17

76 Fed. Reg. 71,626 (Nov. 18,2011)

MOTION FOR STAY OF FINAL RULE AND INTERIM FINAL RULE BY

INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION AND

SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION

The International Swaps and Derivatives Association ("ISDN') and Securities Industry

and FinancialMarkets Association ("SIFMA'l) respectfully request that the Commodity Futures

Trading Commission stay the effective date ofits final rule and interim final rule establishing

position limits, including all provisions of new Part 151 ofthe regulations and all changes to Part

1. See Position Limits for Futures and Swaps; Final Rule and Interim Final Rule, 76 Fed. Reg.

71,626 (Nov. 18,2011). Petitioners do not, however, seek a stay ofthe rule's amendments to 17

C.F.R. § 150.2, made in response to the petition by CME Group. See 76 Fed. Reg. at 71,642,

71,673, 71,684.

Petitioners request this stay pending the resolution of challenges they filed on

December 2, 2011, in the U.S. District Court for the District ofColumbia and the U.S. Court of

Appeals for the District ofColumbia Circuit. See Int'l Swaps & Derivatives Ass'n v. CFTC, No.

1:11~cv~2146 (D.D.C.); Int'l Swaps & Derivatives Ass'n v. CFTC, No. 11~1469 (D.C. Cir.). A

stay is warranted because it would have no adverse effects and yet would reduce the risk that the

rule would impose significant, unnecessary costs on the markets, market participants, and the

public while under review by the courts. Last year, the U.S. Securities and Exchange

Commission stayed its "proxy accessl) rule in response to a request similar to the one Petitioners

make here. A stay is even more appropriate in the unusual circumstances ofthis rulemaking,

where a majority ofthe Commissioners to consider the lUlemaking record concluded that the lUle
was unwise, even as a majority also concluded that the rule was legally required by the plain

language ofthe statute. Having discharged its (perceived) statutory responsibility, the

Commission should now exercise its discretion to stay the rule so the courts may resolve the

underlying questions of Hplain" statutory meaning, a province that is uniquely the courts' own.

As the courts deliberate, there will be no harm to the public from the Commission staying a rule

that the majority ofCommissioners to consider the question found to be problematic. A stay will

also evidence to the courts, and to the public, a thoughtfbl, balanced stewardship on the part of

the Commission toward this rule and implementation ofthe DoddwFrank Act.

ISDA and SIFMA respectfully request an answer to this motion by no later than Mond,{;ly,

December 19, 2011, so thatthey promptly may seek such judicial relief as is necessary. Ifa stay

is granted, Petitioners will join the Commission in seeking expedited judicial review.

Dated: December 12,2011 Respectfully submitted,

["\\~U'/\ iI· I%Xro&;,7/~ Miguel . Estrada

Counsel ofRecord

Eugene Scalia

Jason J. Mendro

Nikesh Jindal

. John F. Bash

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

Telephone: (202) 955 w 8500

Facsimile: (202) 467 w 0539

Counselfor Plaintiffs/Petitioners

2
COMMODITY FUTURES TRADING COMMISSION

POSITION LIMITS FOR FUTURES AND SWAPS

FINAL RULE AND INTERIM FINAL RULE

RIN 3038-AD17

76 Fed. Reg. 71,626 (Nov. 18,2011)

BRIEF IN SUPPORT OF MOTION FOR

STAY OF FINAL RULE AND INTERIM FINAL RULE BY

INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION AND

SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION

Miguel A. Estrada

Counsel ofRecord

Eugene Scalia

Jason J. Mendro

Nikesh Jindal

John F. Bash

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

Telephone: (202) 955-8500

Facsimile: (202) 467-0539

Counselfor Plaintiffs/Petitioners

December 12, 2011
TABLE OF CONTENTS

Page

INTRODUCTION , , , ,.. , "."1 ••••••• , ••• "tt•••• , •••••••••••••••••• ' •• II ••• ' •••••••••• ,'tl •• "" ••••• 1

DISCUSSION , '.'.1 •• " •.•.•••,••• ",."".1.'.I.'t•••••.•••,•••••• ,••••••• ,••..• '•.. I•• '." •• " •••••••...•• "t ••••••••• 2

A. The Interests OfJustice Weigh Strongly In Favor OfA Stay Because A Stay

Could Avert Enormous And Potentially Unnecessary Expenses To The

Markets, Market Participants, And The Public At No Countervailing Cost... "........"" .. 2

B. The Traditional Judicial Factors For Preliminary ReliefUniformly Support A

Stay.,.. ""t"""""""""""""""""""'" •••• ,••••••••• , •••• ' •• 11' •••••••••• '.,•••••••••••• ,."t •• ,." •••• I" ••• ' •••• I ••• 5

1. Failure To Grant A Stay Would Cause IlTeparable Injury .. " "." .. " "".. 6

2. A Stay Would Promote The Public Interest And Would Not Harm Third

Pal'tiesIt .tt••••• , .•••• ft. , ••• 't'I' '1'1" •••••••• ,t •• , ••• ", t "I t."., ••• , •••• 1., ••••••••• , ••• t, , •• , ••••••••• , •••••••••• , ••• , 9

3. Petitioners Are Substantially Likely To Prevail On The Merits 11

CONCLUSION., "..", ,.. , ,.,., , ",., ", , , ,..".. ,."""".,.,.", , , ,,15
Cases

TABLE OF AUTHORITIES

Pages

Business Roundtable v. SEC,

,647 F.3d 1144 (D.C. Cir. 2011) 3

Chevron, U.S.A. Inc. v. NRDC, Inc.,

467 U.S. 837 (1984)"""""1"""""""""""""""""'"'It.'.'..••,.,..,•...•.• II •••• ' ••• I •• "'••• I' •••• ' •••••• ,.11" •••••••• 12

F.T.C. v. HJ. Heinz Co.,

246 F.3d 708 (D.C. ,Cir. 2001) , "11'1"' •••• , •••••• "1".'.1 •••• 11 ••• ' ••• ",•••••• , •••••••••••• ,," ••••• ' •• 11 •• '.11'1'.11' 8

Feinerman v. Bernardi,

558 F, Supp. 2d 36 (D.D.C. 2008) , , 1'" ••• 1,••••••••••••• ,11 •• 1••••"""""""""""""""""""'1""'1'" 6

Inv. Co. Inst. v. Bd. ofGovernor:,' ofthe Fed. Reserve,

551 F.2d 1270 (D.C. Cir. 1977) 1

Nat '1 Treasury Emps. Union v. Fed Labor Relations Auth.,

712 F.2d 669 (D.C. Cit" 1983) I•• 'f ••• ' ••••• ' •••••I.' •••• ,".' ••• , •• 'I••••••'I""""""'_""'_""'fl"""""""""'" 2

Pan Am Flight 73 Liaison Group v. Dave,

711 F. Supp. 2d 13 (D.D.C. 2010) 6

Wash. Metro. Area Transit Comm 'n v. Holiday Tours, Inc.,

559 F.2d 841 (D.C. Cir. 1977) 11, 14

Statutes

5 U.S.C. § 553 f••••••••••••• , ••••••••••••••••••••••••• "., ,.,•••••••• , •••••• ,.,••••••••••••••••• ,1 ••• , •• '.'.1'."""""""f" 14

5 U.S.C. § 705 , , ", , '.'.'1 •••• 1••••••••••• ,." •.•••, ••••• ",•••••• " •••••••• ".1'11 ••••• ' ••••••• '11 •• ""'f"'f"'""" 2

7u.s.e. § 6a,.,." , ,.".,.,.,.,..,., , , ,.. , , '.'.1' .. '.', ,." ,.. ,., , ",., 12,13

7 U.S.C. § 19, "" ,."" ,.. "'.1,.'•• ,1' ••.••. ".f.'••• ' •••••••••' •• '.,.'." ••• , •• , •• ,.,.,.", ••••••• , ••••••• "." •• ,.".,.13

Other Authorities

CHARLES ALAN WRIGHT & ARTIiUR R. MILLER, Federal Practice and

ProcedUl'e § 2948,1 ,., , , , ",.,' "."." .. ' " '." ,., ,.. , , 6

Tr. of Open Meeting on Two Final Rule Proposals Under the DoddpFrank

Act (Oct. 18, 2011) .....," .... 1••.••••• ,.,", •. " •..••••••• ,""" ••... '.•• ,•••••••t •• I•. ,"I'.',•.••.•.•,•• ,•••••• '.•• ,.It"",., 4,9, 11

ii
U.S. Securities and Exchange Commission Release Nos. 9149 et al.

(Oct. 4, 2010) .. t,.,.,••...•.•.. '"II •••••• II"' ••••• I.' •••• , ••••••••••••••• ,II't" ••••••••••• 'I ••• "' •• , ••• ' •• I•• ,I ••••• '.t"""I""""" 2,3

iii
INTRODUCTION

On November 18, 2011, by a vote of3 to 2, the Commodity Futures Trading Commission

("Commission" or "CFTC") adopted a final rule and interim final rule establishing position

limits on derivatives contracts tied to twentyweight different commodities. See Position Limits

for Futures and Swaps; Final Rule and Interim Final Rule, 76 Fed, Reg. 71,626 (Nov. 18,2011)

("Position Limits Rule" or "Rule"). The International Swaps and Derivatives Association

("ISDN') and the Securities Industry and Financial Markets Association ("SIFMA")

(collectively, "Petitioners"), challenged the Position Limits Rule in the U.S. District Court for

the District ofColumbia and the U.S. Court ofAppeals for the District ofColumbia Circuit, See

Int'l Swaps & Derivatives Ass'n v, CFTC, No. 1:11~cv-2146 (D.D,C. 2011); Int'! Swaps &

Derivatives Ass'n v, CFTC, No. 11~1469 (D.C. Cir. 2011).1 They now respectfully request that

the Commission stay the effective date ofthe Rule, including all provisions of new Part 151 of

the regulations and all changes to Part 1,2

1 Petitioners filed challenges in both courts in light ofthe D.C. Circuit's guidance in

Investment Company Institute v. Board ofGovernors ofthe Federal Reserve, 551 F.2d 1270,

1280 (D.C. Cir. 1977), that "[i]f any doubt as to the proper forum exists, careful counsel

should file suit in both the court of appeals and the district court ...."

2 A stay ofall ofPart 151 and all changes to Part 1is essential because all those provisions are

under challenge and are inextricably intertwined. Ifthe Commission were to stay only some

ofthe provisions, the resulting piecemeal implementation could have particularly harmful,

unintended effects. If, for example, the new position limits (Section 151.4) were stayed

without staying the other provisions, traders would be subject to the new, more limited bona

fide ~edging and other exemptions for Referenced Contracts (Section 151.5) and the strict

new aggregation requirements (Section 151.7), without the ability to offset their positions in

futures and options contracts subject to Section 150.2 with their positions in swaps, as

permitted by Part 151 's position-limits regime. See 76 Fed. Reg. at 71,672 (explaining that

under new Part 151 "market participants can net their physical delivery and cashwsettled

futures contracts with their swaps transactions for purposes of complying with the non-spotmonth limit"); see also id at 71,637 ("[A] trader may hold positions up to the spotwmonth

(Continued on next page ... )
As explained below, a stay would promote the public interest by avoiding unnecessary

costs and confusion for the markets, market participants, and the public-and would have no

countervailing disadvantages. Last year, the U.S. Securities and Exchange Commission cited

similar considerations in granting a request to stay a rule that had been adopted pursuant to

another provision ofthe Dodd-Frank Act. See U.S. Securities and Exchange Commission

Release Nos. 9149 et al. (Oct. 4, 2010) (staying newly adopted Rule 14a-ll pending judicial

review in order to "avoid[] potentially unnecessary costs, regulatory uncertainty, and disruption

that could occur ifthe rules were to become em~ctive during the pendency of a challenge to their

validity"). With much to gain and nothing to lose, there is ample reaspn to stay the effective date

ofthe Position Limits Rule pending the orderly disposition ofPetitioners' challenge. If a stay is

granted, Petitioners will join the Commission in seeking expedited judicial review.

DISCUSSION

A. The Interests OfJustice Weigh Strongly In Favor Of A Stay Because A Stay Could

Avert Enormous And Potentially Unnecessary Expenses To The Markets, Market

Participants, And The Public At No Countervailing Cost.

Under the Administrative Procedure Act ('lAPA"), an agency may stay its own action

pending judicial review when the "agency finds that justice so requires." 5 U.S.C. § 705; see

also Nat" Treasury Emps. Union v. Fed. Labor Relations Auth., 712 F.2d 669,676 n.l5 (D.C.

(...continued from previous page)

limit in the physical-delivery contracts, as well as positions up to the applicable spot-month

limit in cash-settled contracts (Le., cash-settled futures and swaps) ....n).

Petitioners do not seek to stay the Rule's distinct amendments to 17 C.F.R. § 150.2 (see 76

Fed. Reg. at 71,642, 71,673, 71,684), which increase preexisting position limits in response

to a proposal by CME Group. Petitioners have not challenged these amendments in their

recently filed litigation (since Petitioners support the relaxing of position limits); those

changes operate separately from the other provisions drawn into question by the litigation

and may be implemented independently, without regard to the outcome ofthe legal challenge

before the courts.

2
Cir. 1983) (noting cases "in which a federal agency, in its discretion . .. undertakes to stay

execution of... agency action" (emphasis added». An agency need not weigh the four factors

that ordinarily are considered by courts to conclude that a stay is appropriate. Thus, for example,

the U.S. Securities and Exchange Commission stayed its "proxy access" rule after concluding

that a stay was "consistent with what justice requires" in light ofthe "potentially unnecessary costs,

regulatory uncertainty, and disruption" that would occur ifthe rule were implemented while under

judicial review. U.S. Securities and Exchange Commission Release Nos. 9149 et al. (Oct. 4,

2010); see also Business Roundtable v. SEC, 647 F.3d 1144, 1148 (D.C. Cir. 2011).

A stay is appropriate in this case because, as the Commission and commenters alike

acknowledge, work that companies will have to undertake in preparation for implementing the

Rule is certain to impose immediate and significant costs on market participants--costs that

would prove unnecessary in the event that Petitioners' challenge succeeds. See, e.g., 76 Fed.

Reg. at 71,665. Among a host ofother expenses, "market participants will incur costs associated

with developing, implementing and maintaining a method to ensure compliance with the position

limits and its attendant requirements (e.g., bona fide hedging exemptions and aggregation

standards)." Id. As the Commission observed in the rule release and as discussed in greater

detail below, the Rule will require market patiicipants to redesign trading strategies and to

develop new infrastructure and mechanisms to ensure compliance. Id. at 71,677. Financial

institutions and other affected entities will immediately need to re-evaluate and, in some

instances, reorganize their corporate structures in response to the Rule's aggregation provisions.

These and other costly steps must be taken well in advance ofthe Rule's effective date, because

3
ofthe length oftime they will take to complete.J It does not comport with justice or sound

stewardship ofthe U.S. financial markets to force companies to undertake such transitional

measures while a bona fide question exists whether the Rule will be upheld in its current form.

In addition, the Commission itselfwould incur costs and burdens, which may prove unnecessary,

in modifying its own infrastructure to monitor compliance with the Rule.

More broadly, ifthe new position limits become fully effective while under judicial

review, there is substantial evidence that they will reduce liquidity, impair the price discovery ,

function ofthe markets, increase price volatility, drive investment to overseas commodity

markets, and (ultimately) raise prices for consumers. These costs will be compounded by the

uncertainty and confusion created by the possibility that the Rule will be vacated by a court at

anytime.

On the other hand, there is no evidence that postponing the Rule's effective date would

have any detrimental effects. Rather, former-Commissioner Dunn, whose vote in favor ofthe

Rule was necessary for its adoption, observed that "no one ... presented this agency any reliable

economic analysis to support either the contention that excessive speculation is affecting the

market we regulate or that position limits will prevent the excessive speculation." Tr. of Open

Meeting on Two Final Rule Proposals Under the Dodd-Frank Act (Oct. 18, 2011) ("Oct. 18

Tr."), at 13. The two dissenting Commissioners concurred. See 76 Fed. Reg. at 71,669

(Sommers, Comm'r, dissenting); id. at 71,702 (O'Malia, Comm'r, dissenting). Even supposing

3 The earliest date that the material portions ofthe Commission's Rule will take effect is 60

days after the Commission defines "swap" pursuant to a joint rulemaking with the Securities

and Exchange Commission. See 76 Fed. Reg. at 71,687-71,688. Petitioners nonetheless

request a stay at this time because efforts companies must undertake now in anticipation of

the Rule's implementation will impose irreversible costs, and because without a stay the Rule

will take effect before the conclusion ofthis litigation.

4
the Dodd-Frank Act required adoption ofthe new Rule-and Petitioners and two ofthe

Commission's members dispute that-Congress took no step to constrain the discretion all

agencies have to stay the effective date oftheir actions pending judicial review, The

Commission should exercise that discretion here,

In short, implementing the compliance regime and the corporate reorganizations and

divestitures potentially required by the Rule would inflict significant and potentially unnecessary

costs on market participants and consumers, including transition costs that could prove

unnecessary ifthe Rule is vacated, whereas postponing its effective date in deference to the

judicial process will have no adverse effects, This Rule was adopted not because a majority of

Commissioners believed position limits were necessary 01' appropriate-a majority concluded

otherwise-but because a bare majority ofCommissioners believed that the Rule was statutorily

required, While that legal proposition (and others) are examined in the courts, it is appropriate

that the Commission stay this costly rule of doubtful necessity.

B. The Traditional Judicial Factors For Preliminary Relief Uniformly Support A Stay.

The Commission need not apply the traditional four"factor judicial test for granting

preliminary relief. Rather, it appropriately may conclude that, as a matter ofresponsible

stewardship ofthe financial markets in a fi'agile American economy, the Rule should be stayed

pending answers fi'om the courts that will provide guidance for this Rule and other, future

rulemakings. Nonetheless, each factor ofthe four-factor test weighs strongly in favor of a stay.

As explained below, implementing the Rule during the pendency ofthis litigation would

i1'1'eparably harm market participants, including Petitioners' members. The public interest favors,

a stay, which would reduce the risk ofhal111 to countless non-parties. And, there are legitimate

and serious questions to be raised about the Rule, many ofwhich were publicly voiced by a

majority ofthe Commissioners. At minimum, Petitioners have demonstrated that a stay is

5
warranted by raising "serious legal questions going to the merits, so serious, substantial, and

difficult as to make them a fair ground oflitigation." Pan Am Flight 73 Liaison Group v, Dave,

711 F. Supp. 2d 13,37 (D.D.C. 2010), aff'd 639 F.3d 1102 (D.C. Cir. 2011) (internal quotation

marks and alteration omitted).

1. Failure To Grant A Stay Would CauseIrreparable Injury.

Generally, a stay is appropriate when failure to grant it would impair a court's ability to

grant an effective remedy. See CHARLES ALAN WRIGHT & ARTHUR R. MILLER, Federal Practice

and Procedure § 2948.1 (2d ed. 2011). Because the government cannot be made to pay damages

as compensation for economic harm, in this context economic harm is "irreparable perse."

Feinerman v. Bernardi, 558 F. Supp. 2d 36, 51 (D.D.C. 2008).

The Commission acknowledged that "the final rules establishing position limits and

related provisions will result in costs to market participants." 76 Fed. Reg. at 71,665. As

catalogued by the Commission, those costs include fashioning "market participation and trading

strategies ... to take into account" the Rule, as well as developing and implementing new

compliance infrastructure, which will impose costs "related to the monitoring of positions , .. ,

filing, reporting, and recordkeeping requirements, and ... changes to information technology

systems." lei. The provisions ofthe Rule under challenge here will take effect 60 days after the

issuance ofthe new joint CFTCISEC rule defining "swap," which is expected in the next 2-3

months. A decision by the Court ofAppeals cannot be expected before the summer of2012,

even ifthat Court grants expedited review. Ifthe case proceeds initially in the District Court

rather than the Court of Appeals, a final decision in the litigation might not issue before 2013.

Without a stay, market participants would be forced throughout this period to incur substantial,

unnecessalY~ and unrecoverable transition costs.

6
Even more troubling, market participants faced with the strict new aggregation

requirements will have to consider reorganizing their corporate structures to comply with the

Rule. For example, as Commissioner O'Malia explained, "[t]he practical effect" ofthe new

aggregation rules is that "holding companies who do not meet any ofthe ... limited specified

exemptions will be forced to aggregate on a 100% basis the positions of any operating company

in which it holds a ten percent or greater equity interest in order to determine compliance with

position limits." 76 Fed. Reg. at 71,704 (O'Malia, Comm'r, dissenting). That will compel

holding companies to divest their shares in other companies in circumstances where, absent

divestiture, the aggregation limits would be exceeded. Indeed, legal and informational barriers

may in some instances force divestment simply as a practical matter: An investing company

with a 10% or more ownership interest in other companies cannot be certain it is complying with

the aggregation requirements without acquiring information from those companies about their

positions. Yet, in some instances, fiduciary duties regarding confidentiality will prohibit sharing

such information. Ifthe investing party is unable to obtain the necessary information for any

reason other than that providing it would, in the opinion of counsel, violate federa/law, see 76

Fed. Reg. at 71,693, then the company would have no choice but to divest its ownership interest

in the other companies. See, e.g., id. at 71,704 (O'Malia, Comm'r, dissenting) (criticizing the

Rule for its "operationallywimpracticable solution to the problem ofimp[u]ting ownership absent

control"). The process of assessing and implementing this solution will be costly and time- .

consuming-and must be commenced immediately. To complete this process for the potentially

hundreds of affected companies and relationships before the Rule's anticipated effective date is a

practical impossibility.

7
The Rule therefore poses significant barriers to efficient investments over the long run,

and in the near term-well before a court decision can be expected-will force some companies

into costly, inefficient divestments that likely will be impossible to reverse even ifthe Rule

ultimately is vacated by a cOUli. Cj F.T.G. v. HJ. Heinz Co., 246 F.3d 708, 726 (D.C. Cir.

2001) (preliminary injunctive relief is appropriate to prevent corporate reorganization that would

be difficult 01' impossible to undo). At a time when a recovering U,S. economy demands capital

investment in American businesses, the Rule will discourage investment in companies that are

active in the commodity markets and are an important source ofAmerican jobs, including energy

producers and utilities. That significant hurdle to a resurgent economy should not be erected

before the courts determine the Rule to be lawful.

The two dissenting Commissioners recognized the immense costs that the Rule would

impose on the markets and market participants. Commissioner Sommers emphasized that the

Rule "has the potential to irreparably harm" markets in commodity derivatives, potentially

inflicting "the greatest harm on bona fide hedgers-that is, the producers, processors,

manufacturers, handlers and users of physical commodities." fd. at 71,699-71,700 (emphasis

added); see also id. at 71,703 (O'Malia, Comm'r, dissenting) (explaining that the narrower

definition ofbona fide hedging "will negatively impact the cash commodity markets and the

physical commodity marketplace by eliminating certain legitimate derivatives risk management

strategies, most notably anticipatory hedging"). According to Commissioner O'Malia, based on

data provided to the Commission, "this rule will have an annual effect on the economy ofmore

than $100 million." fd. at 71,705. A substantial portion ofthese costs relate to establishing the

basic compliance infrastructure. The Commission, for example, estimated that compliance with

8
the bona fide hedging repOliing requirements would impose "$27.5 million in annualized capital

and start-up costs and annual total operating and maintenance costs." Id. at 71,677.

"Start-up costs" and other costs to establish a "compliance infrastructure" are costs that

by definition must be incurred before the effective date ofthe Rule. Yet, ifthe Rule ultimately is

oVe1iurned by the courts, those significant sunk costs (which will be even greater than estimated

by the Commission) will have been incurred needlessly.

2. A Stay Would Promote The Public Interest And Would Not Harm Third

Parties.

Ifthe challenged provisions are stayed, the public interest will be served and third parties

will incur no harm. There is no urgent need for the Rule to go into effect. As Commissioner

Dunn put it, position limits are "at best a cure for a disease that does not exist" and "[a]t

worst ... may harm the very markets we're intending to protect" by leading to "higher prices for

commodities that we consume on a daily basis." Oct. 18 Tr., at 13-14. The Commission did not

conclude that position limits are necessary to curb excessive speculation or that position limits

will have any other beneficial effect on the markets. To the contrary, academics, experts, the

Government Accountability Office, the International Monetary Fund, the Organization for

Economic Cooperation and Development, the European Commission, and the CFTC itself(as

part of an interagency task force) agree that position limits are not necessary to curb excessive

speculation. CME Group Comment (Mar. 28, 2011), at 4; see also Coalition ofPhysical Energy

Companies Comment (Mar. 28, 2011), at 3; BlackRock Comment (Mar. 28, 2011), at 3; ISDA

and SIFMA Comment (Mar. 28, 2011), at 5.

Indeed, the public will be harmed when the Rule takes effect. As Commissioner

Sommers observed, the Rule "will make hedging more difficult, more costly, and less efficient,

all ofwhich, ironically, can result in increased food and energy costs for consumers." 76 Fed.

9
Reg. at 71,699. Commissioner O'Malia echoed this concern, warning that "our action could

negatively affect the liquidity and price discovery function of our markets." ld. at 71,706.

Commenters pointed to a "wealth of empirical evidence supporting the view that the proposed

hard position limits ... would actually be counterproductive by decreasing liquidity in the

CFTC-regulated markets which, in turn, would likely increase both price volatility and the cost

.of hedging." CME Group Comment, at 2. And, the Colorado Public Employees Retirement

Association stated that it was "concerned that ... the Commission's choice to proceed with the

position limits proposal could be deleteri01.1S to institutional investors." Colorado Public

Employees Retirement Association Comment (Mar. 28, 2011), at 2; see also Morgan Stanley

Comment (Mar. 28, 2011), at 3 (expressing concern that the Rule will "compromise the price

discovel')' function ofU.S. markets, increase transaction costs, and potentially lead to higher

commodity prices for consumers))); ISDA and SIFMA Comment, at 6 (noting that "loss of

liquidity alone may increase volatility in the markets, which is precisely what the Commission

seeks to avoid))). Onerous position limits also threaten to drive investment to foreign commodity

markets, which in turn would reduce liquidity in the U.S. markets and compound the harm to

their effective operation. See 76 Fed. Reg. at 71,658.

In any event, this stay request does not present the choice between some regulation and

none at all. If a stay is granted, market participants still will be subject to the position limits set

forth in Section 150.2 as well as position limits and position accountability rules established by

designated contract markets. Thus,setting aside the merits of position limits, substantial

regulation will remain in place pending judicial review.

The balance of harms therefore militates in favor of a stay. Granting a stay will cause no

harm to the public at all. Against this, withholding a stay will impose significant-and

10
potentially unnecessary and unrecoverable--costs on market participants and consumers, and

may impair the public interest in the effective operation ofthe commodity markets.

3. Petitioners Are Substantially Likely To Prevail On The Merits.

This rulemaking is exceptional-indeed, potentially unique-in that a majority ofthe

Commissioners to consider the rulemaking record, the Rule, and its effects concluded in their

expert judgment that it would be best ifthe Rule were not adopted. Commissioners Sommers

and O'Malia each submitted statements vigorously dissenting from the Rule's adoption. See 76

Fed. Reg. at 71,699-71,706. And although Commissioner Dunn cast the decisive vote in favor

ofthe Rule, he stated that "position limits may harm the very markets we're intending to

protect," leading to "higher prices for commodities that we consume on a daily basis." Oct. 18

Tr., at 13-14. He voted to approve the Rule because he believed that Congress compelled the

Commission to promulgate new position limits; had he viewed the Commission's discretion

otherwise, the Rule presumably would have been rejected by the Commission. With their court

filings, Petitioners have now put before the courts the concerns expressed by the Commissioners,

as well as additional arguments that raise genuine questions about the Rule's legitimacy.

With this request for a stay, Petitioners do not ask the Commission to concede that this

legal challenge is legally correct. Just last year, the U.S. Securities and Exchange Commission

stayed the proxy access rule and then proceeded to mount a vigorous legal defense. Rather, it is

sufficient for a stay for the Commission to recognize (in deference, in part, to the strongly held

views ofthe dissenting Commissioners) that "a serious legal question is presented." Wash.

Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841,844 (D.C. Cir. 1977). And in

the unusual circumstance presented here, a stay is the most appropriate response to the division

of opinion among the Commissioners: The Commission adopted this Rule with a majority

believing that the Rule was unwise, but with a majority also concluding that the Rule was

11
required by the plain language ofthe governing statute. Determining the "plain meaning" of

statutes is ultimately the responsibility ofthe courts, however, not agencies. See Chevron, U.S.A.

Inc. v. NRDC, Inc., 467 U.S. 837, 843 n.9 (1984). Therefore, having discharged its perceived

statutory responsibility, the Commission should exercise its expertise and inherent discretion to

stay this dubious Rule while the courts resolve the questions ofstatutory duty at the heart ofthe

dispute.

The arguments Petitioners will present to the courts are, first, and as explained in the

complaint filed in U.S. District Court, that the Commission failed to find the Rule to be

necessary and appropriate. The plain text ofthe Commodity Exchange Act ("CEA") permits the

CFTC to adopt position limits only "as the Commission finds are necessary to diminish,

eliminate, or prevent" "an undue and unnecessary burden on interstate commerce" caused by

"[e]xcessive speculation." 7 U.S.C. § 6a(a)(1). Furthelmore, the Commission is permitted to

establish position limits only ifit finds them "appropriate." Id. § 6a(a)(2)(A), (a)(5)(A). As

Commissioner O'Malia put it, "Congress could not be more clear in its directive to the

Commission ... to ensure that such limits are essential and suitable to combat the actual or

potential threats to commodity prices due to excessive speculation." 76 Fed. Reg. at 71,700.

Yet, the Commission made no such findings.

Second, and related, the Commission proceeded in the mistaken beliefthat it was under

an inexorable statutory command to adopt position limits, with no discretion to withhold costly

regulations if, in its expert judgment, it believed regulations to be unnecessary and inappropriate.

The Commission concluded that "Congress directed [it] to impose position limits"-and thus

"did not give the Commission a choice"-based on Congress's use ofthe verb "shall" in Section

6a. 76Fed. Reg. at 71,628. This reading ofthe statute, however, overlooked the fact that "shall"

12
is modified by "as appropriate"-language that expressly directs the Commission to exercise its

discretion in imposing position limits. 7 U.S.C. § 6a(a)(2)(A), (a)(5)(A); see also 76 Fed. Reg. at

71,701-71,702 (O'Malia, Comm'r, dissenting) ("[B]y directing the Commission to establish

limits 'as appropriate,' Congress intended to provide the Commission with ... discretion."). The

Commission appears to have appreciated this discretion, at least in part, in deciding to set

position limits only for some ofthe contracts within its jurisdiction. See 76 Fed. Reg. at 71,629,

71,665. Moreover, Section 6a(e) ofthe CEA confirms that the Commission could impose no

position limits at all. See 7 U.S.C. § 6a(e) (setting condition to apply "ifthe Commission'shall

have fixed limits under this section'l (emphasis added)).

Third, the Commission did not conduct the cost-benefit analysis required by the CEA.

7 U.s.C. § 19(a); see also 76 Fed. Reg. at 71,705 (OlMalia, Commlr, dissenting) (criticizing the

Commission's cost-benefit analysis). Before a rule is promulgated, "[t]he costs and benefits of

the proposed [rule] shall be evaluated in light of-(A) considerations of protection ofmarket

participants and the public; (B) considerations ofthe efficiency, competitiveness, and financial

integrity offutures markets; (C) considerations of price discovery; (D) considerations ofsound

risk management practices; and (E) other public interest considerations." 7 U.S.C. § 19(a).

Despite this mandate, the Commission did not seriously consider evidence demonstrating that the

Rule is unnecessary and would have significant adverse effects on the markets and consumers.

See, e.g' l 76 Fed. Reg. at 71,663-71,664 (describing this evidence but ultimately disregarding it).

The Commission also failed to collect data, including data on swaps, that would enable it to

evaluate the costs ofthe Rule. See, e.g., id at 71,665.

Fourth, the Commission fell short ofthe APA's requirement to articulate a rational

connection between the facts it found and certain decisions it made. For example, the

13
Commission did not set forth a reasoned explanation for establishing a position limit of25% of

deliverable supply for cash-settled contracts; for rejecting a broader measure of deliverable

supply proposed by Petitioners; for declining to exempt traders from the aggregation rules when

compliance with those rules might require them to violate state law or the law offoreign

jurisdictions; nor for restricting legitimate, long-practiced hedging activity.

Fifth, the Commission did not sufficiently afford "interested persons an opportunity to

participate in the rule making." 5 U.S.C. § 553(c). For example, without notice or adequate

explanation, the Commission removed the owned non-financial entity exemption set forth in the

notice ofproposed rulemaking. See 76 Fed. Reg. at 71,653-54; see also id. at 71,679 n.496.

Moreover, the one-page discussion ofthe Rule's costs and benefits in the notice ofproposed

rulemaking did not fairly apprise members ofthe public ofthe empirical data and reasoning on

which the Commission would rely. Therefore, the public had no reasonable opportunity to

evaluate and critique the Commission'sjustification for the Rule. Nor did the notice ofproposed

rulemaking give any notice ofthe severability clause or provisions circumscribing the scope of

the hedging exemptions. The public thus lacked a meaningful opportunity to evaluate and

comment onthese provisions and their effects on the Rule as a whole.

These serious concerns about the Position Limits Rule-voiced by the Commissioners

and public alike-weigh heavily in favor ofa stay, even ifthe Commission disagrees that

Petitioners' challenge is likely to prevail. See, e.g., Wash. Metro. Area Transit Comm 'n, 559

F.2d at 844 ("An order maintaining the status quo [a stay] is appropriate when a serious legal

question is presented ... whether or not movant has shown a mathematical probability of

success."). Thus, the interests ofjustice would be served by postponing the effective date ofthe

Rule to determine whether the Commission correctly interpreted its statutory obligations.

14
CONCLUSION

For the foregoing reasons, Petitioners request that the Commission grant their stay

motion.

Dated: December 12, 2011

15

Respectfully submitted,

Miguel. (Y)i~~Est;ada

be 5+rc.o\e.7r~

Counsel ofRecord

Eugene Scalia

Jason J. Mendro

Nikesh Jindal

John F. Bash

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W..

Washington, D.C. 20036

Telephone: (202) 955-8500 .

Facsimile: (202) 467-0539

Counselfor Plaintifft/Petitioners
CERTIFICATE OF SERVICE

IHEREBY CERTIFY that on this 12th day ofDecember, 2011, true and correct copies

ofthe foregoing Motion for Stay ofFinal Rule and Interim Final Rule and BriefIn Support of

Motion for Stay ofFinal Rule and Interim Final Rule were served via courier on the following:

The Honorable Eric H. Holder Jr.

Attorney General ofthe United States

United States Department ofJustice

Room 4400

950 Constitution Avenue, N.W.

Washington, D.C. 20530

Civil Process Clerk

United States Attorney's Office

District ofColumbia

555 Fourth Street, N.W.

Washington, D.C. 20530