The U.S. Court of Appeals for the District of Columbia Circuit has put alternative mutual funds on notice after ruling in favor of the Commodity Futures Trading Commission by upholding its recent amendments to Rule 4.5 that will require mutual funds that bet on gold, oil or other commodities to register as commodity pool operators.

The U.S. Court of Appeals for the District of Columbia Circuit last month rejected an argument by the U.S. Chamber of Commerce and the Investment Company Institute that the CFTC rule should be tossed out because mutual funds are already registered with the Securities and Exchange Commission and that registering with the CFTC would be both duplicative and expensive.

In fact, the court said that the CFTC did address the costs and benefits of the proposed rule changes and that it would "be quite literally impossible to calculate the costs of an unknown regulation."

Also, it noted that the "law does not require agencies to measure the immeasurable" because the agency need only "consider and evaluate potential cost and benefits."

Overall, the court rejected many of the plaintiffs' contentions as "nothing more than... policy disagreement[s]" with the CFTC, which are an insufficient basis for setting aside agency action.

"As we review the court's decision, we will continue to look for ways to lessen the burdens this rule imposes on the business community," according to David Hirschmann, chief executive officer of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

"We believe this rule was improperly adopted and imposes duplicative compliance costs on American companies and investors."

For its part, Karrie McMillan, general counsel of the ICI, said: "The court's decision...appears to reflect its judgment that the costs and benefits of the CFTC's expanded regulation of investment companies cannot be fully assessed until the agency completes its rulemaking to 'harmonize' its rules with those of the Securities and Exchange Commission."

She added that while the ICI continues to believe that the CFTC's recent amendments to Rule 4.5 were improperly adopted, it intends to focus on ensuring that the "CFTC's regulatory regime as it evolves does not adversely affect fund investors."

Them sound like fighting words.

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