Judge strikes down rule capping speculative trades


WASHINGTON (AP) — A federal judge has struck down a rule required under the 2010 financial overhaul that seeks to limit speculative trading of commodities futures.

U.S. District Judge Robert Wilkins said Friday that the Commodity Future Trading Commission failed to show that trading caps were necessary and therefore violated federal law. He sent the rule back to the regulatory agency to be redrafted.

The rule, which was adopted on a divided vote last year, restricted the volume of futures contracts that financial investors can trade for 28 commodities. They are agricultural commodities, energy and metals that are traded on several U.S. exchanges.

The International Swaps and Derivatives Association, a group representing banks and other financial firms, and Wall Street's largest trade group, the Securities Industry and Financial Markets Association, had challenged the rule in the U.S. District Court in Washington.

After the ruling, the groups said in a statement that they were pleased with the judge's decision. Trading limits can make prices more volatile by reducing the amount of money in the market, the statement said.

Investors trade futures to profit from swings in market prices. Hundreds of millions of dollars in profits for Wall Street banks are at stake.

The buyer of a futures contract commits to purchase something at a specified date and price. Futures are supposed to reduce price volatility. But financial investors use them to bet on prices, which critics say can magnify price swings and drive up the prices of food and gasoline.

Wilkins wrote that the 2010 financial overhaul law doesn't give "a clear and unambiguous mandate" to the CFTC to set the limits, as the agency maintains.

CFTC Chairman Gary Gensler said in a statement Friday that he was "disappointed" by the ruling and that the agency would consider its options. They could include an appeal to a higher court.

Gensler said the rule "addresses Congress' concern that no single trader is permitted to obtain too large a share of the market" to keep it fair.