Two industry advocates, the Investment Company Institute and the U.S. Chamber of Commerce, have filed a suit in the U.S. District Court for the District of Columbia challenging the amendment to Rule 4.5 of the Commodity Futures Trading Commission—which requires registered investment companies trading in commodities to also register with the CFTC as “commodity pool operators.”

The agencies claim that the rule imposes “redundant regulations on registered investment companies—such as mutual funds and exchange traded funds (ETFs)—without satisfying the agency’s obligation to weigh the costs or benefits of the rule.”

On February 9, by a vote of 4-to-1, CFTC commissioners approved significant changes in Rule 4.5, which governs how and when investment funds can exclude themselves from registering as Commodity Pool Operators (CPO), placing them under the purview of that agency. The amendment removed many of the permissible conditions from exclusion as well as other important regulatory changes. Many of these same conditions for exclusion had been instituted in previous amendment to the rule.

In the suit, both the ICI and the Chamber of Commerce claim that the amended rule, which would place investment companies, which are already registered with the U.S. Securities and Exchange Commission, under the purview of two agencies, and allege that it violates both the Commodity Exchange Act and the Administrative Procedure Act on multiple accounts. The complaint also declares that the rule is “arbitrary and capricious” and requests injunctive relief to prevent the CFTC from implementing the Rule.

“Indeed, in clear disregard for the most basic requirements of reasoned agency action, the [CFTC] simply ignored and declined to mention key elements of the reasoning it had previously followed in lowering barriers to participation in the commodities markets by investment companies that it has now raised again,” the suit declares.

Eugene Scalia and Daniel J. Davis of Gibson, Dunn, and Crutcher LLP will be counsel to ICI and the Chamber in this litigation.

“The CFTC failed to satisfy its statutory obligation to weigh the costs and benefits of this new regulation,” said Scalia, in a statement. “The agency imposed burdensome new requirements without showing that they are necessary, or even that they will be helpful to investors. What’s more, just a few years ago the CFTC determined that similar requirements had adverse effects on the markets.”

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