Gibson Dunn's Scalia Takes on CFTC Cross-Border Swaps Rule
Eugene Scalia of Gibson, Dunn & Crutcher will have an opportunity to improve on his 6-2 record in challenges to government regulations promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act. A trio of Wall Street trade groups represented by Scalia—the Securities Industry and Financial Markets Association, the International Swaps and Derivatives Association, and the Institute of International Bankers—filed a complaint on Wednesday against the U.S. Commodity Futures Trading Association, alleging that the CFTC improperly bypassed the formal rule-making process in order to assert itself as the main regulator of international swaps trading.
At issue in the case is the CFTC's guidance on cross-border swap transactions, known as the "cross-border rule." In a July 2013 advisory document, the CFTC explained that it would apply the rules to foreign entities benefiting from the U.S. credit system. CFTC chairman Gary Gensler said at the time that the rules ensure the "protection for the American public by bringing transparency to these markets."
Scalia paints a different picture in Wednesday's complaint, filed in U.S. district court in Washington D.C. He argues that the CFTC not only adopted confusing rules, but also did so in a way that violated the Administrative Procedures Act. "The commission has promulgated, in the guise of 'guidance,' an expansive new body of regulations under [Dodd-Frank] that seeks to extend the CFTC's authority and requirements across the globe," Scalia wrote.
Gensler, a former Goldman Sachs partner, has won over Wall Street critics by taking a hard line against banks at the center of the financial crisis. He is expected to step down by Jan. 3. The cross-border rule is a major aspect of his legacy.
In recent years, Scalia has struck down several rules adopted by CFTC and the U.S. Securities and Exchange Commission under Dodd-Frank. Scalia declined to comment.