Setting the stage for what's likely to be a knock-down fight, financial industry lawyers led by Gibson Dunn & Crutcher partner Eugene Scalia faced off in court Tuesday against counsel for the U.S. Commodity Futures Trading Commission over rules governing the $600 trillion market for cross-border swaps.
In a preliminary hearing before U.S. District Judge Ellen Huvelle in the District of Columbia, the lawyers laid out key points of contention in the suit filed by the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association and the Institute of International Bankers in December.
“As everyone agrees, this is a hugely important issue,” said CFTC deputy general counsel Robert Schwartz.
The case hinges on whether the commission violated the Administrative Procedure Act when it issued “guidance” covering overseas trading activity as part of the agency’s mandate under the Dodd-Frank Act. The “heart of our challenge,” Scalia said, is that the guidance is actually a rule, and therefore the agency should have done a cost-benefit analysis.
The CFTC disagrees. “We view it as a policy document,” Schwartz said, and so a cost-benefit analysis was not required. The agency action at issue covers how international transactions are cleared, executed and reported.
“You say it’s guidance, they say it’s binding,” Huvelle said. “You’re 180 degrees apart.”
The immediate question before the court is standing. The commission challenged the financial groups’ standing in a motion to dismiss--a petition that “if you chose not to respond to would be granted,” Huvelle told Scalia.
Scalia promised affidavits establishing injury by the petitioners within two weeks. He called the standing issue “a delaying tactic” and a “feint.”
Schwartz indicated the agency might ask for discovery related to the affidavits. “We need not accept at face value what are likely to be carefully worded statements of injury,” he said.
Huvelle was skeptical. “If you think discovery on standing is useful, you’ll have an uphill battle explaining that to me.”
The financial groups also challenged the extra-territoriality provisions of 14 other Dodd-Frank rules that the CFTC issued. Schwartz said the government will want to establish that the petitioners have standing to go after those provisions as well. “We want to narrow this case as much as possible,” he said.
“I suggest if there’s any way you can streamline this, we’ll move a lot faster,” Huvelle told both lawyers.
Scalia said the U.S. Chamber of Commerce will submit an amicus brief backing the financial groups, and Schwartz said Better Markets plans to weigh in on the commission's side.
“The sooner that clarity is provided, the better for all,” Scalia said. “There’s confusion in the market. [The CFTC] blames it on our suit. We blame it on their actions.”
Huvelle has not yet set a date to hear arguments on summary judgment.