Last week's court decision against Commodity Futures Trading Commission rules imposing position limits in 28 derivatives markets represents a new high water mark in regulatory review that may reverberate across other efforts to implement the Dodd-Frank Act. 

An important implication to come out of this ruling is that regulatory agencies need to make sure that the regulations being implemented are necessary to address the problem they were intended to address in legislation – in this specific case, mitigating perceived excessive speculative activity, particularly in markets such as oil. 

The pivotal question on which the ruling hinges has to do with the CFTC's interpretation of a single word. The Dodd-Frank Act amendment to the Commodity Exchange Act states that the agency "shall" establish limits to rein in speculative activity in markets. The CFTC read this as a mandate. But the same sentence contained the phrase "as appropriate," which the plaintiffs successfully argued modified the "shall," giving the CFTC leeway to not impose limits at all.  

For the full BankThink piece see "CFTC's Court Defeat Holds Lesson for All Banking Regulators"