By Douwe Miedema and Aruna Viswanatha
WASHINGTON, Dec 12 (Reuters) - A federal judge upheld a new
regulation governing the mutual funds industry on Wednesday,
ruling against two industry trade groups that had sought to
block a registration rule by the Commodities Futures Trade
The Investment Company Institute and the U.S. Chamber of
Commerce had filed a lawsuit in April seeking to overturn the
new regulation, claiming that the CFTC's requirement for funds
to register duplicates a similar rule from the Securities and
The ruling is a shot in the arm for the CFTC, which is
facing a number of legal challenges as it works to bring large
unregulated swathes of financial markets under its remit to
prevent a repeat of the 2008 financial crisis.
U.S. District Judge Beryl Howell, in her ruling, said the
CFTC had done enough to weigh the cost and benefits of the new
"The CFTC considered the relevant factors, acted well within
its discretion, and that there was nothing arbitrary or
capricious about the CFTC's actions," Howell said in her ruling.
Under the new rule, advisers to mutual funds and
exchange-traded funds need to register with the CFTC if their
commodity trades, including futures, swaps and options exceed
certain thresholds, excluding pure hedges.
Registration with the CFTC would then impose regulatory
requirements on advisers, including record-keeping, reporting,
advertising restrictions and disclosure obligations.
The groups have 30 days to appeal the ruling.
"We continue to believe that the CFTC's new regulations of
registered investment companies are fundamentally flawed, the
U.S. Chamber of Commerce said.
"They inject more confusion into our capital markets,
without offering any real benefits to investors. We are
reviewing the district court's opinion and evaluating our
options," said the group.
In September, the derivatives industry knocked out a CFTC
rule to curb commodity speculation by putting caps on trading
positions, when a judge said it had no explicit mandate to
introduce the rule. The CFTC is appealing.
The funds rule stems from a request by the National Futures
Association, a self-regulatory organization for the industry,
while the position limits rule is tied to the financial
industry reform under the Dodd-Frank law.
Still, the two lawsuits employed a similar basic argument
that the CFTC failed to properly weigh the costs and benefits of
the rules before finalizing them, and the lawyer pleading the
cases was also the same: Eugene Scalia.
Scalia - the son of Supreme Court Justice Antonin Scalia -
has a winning record in striking down regulatory rules based on
problems in the rulemaking process and has successfully
challenged SEC rules in the past two years.
(Additional reporting by Sarah Lynch)
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