Commodity Futures Trading Commission, Applicants v. British American Commodity Options Corp.

Background

The Government, acting for the Commodity Futures Trading Commission, sought to put a new rule into effect requiring commodity options dealers to hold 90% of each customer’s payment in special segregated bank accounts. A trade group of commodity options dealers and several dealer firms sued before the rule took effect. A District Court preliminarily enjoined the segregation rule, but the Court of Appeals reversed that injunction and then entered stays (temporary blocks) of its mandate while the dealers sought review by the Supreme Court; the appeals court required the dealers to post bonds as interim protection.

Reasoning

The central question was whether a Justice should lift the appeals-court stays so the segregation rule could go into effect immediately. The Justice considered the balance between the dealers’ claimed irreparable harm if the rule began (including possible business failures) and the public’s interest in investor protection. The Justice gave weight to the appeals court’s familiarity with the case, its decision to require bonds, and the lack of new circumstances to justify reversing that decision. The Justice also noted it was not impossible that the Supreme Court might agree to review the rule. Concluding there were no exceptional circumstances to overturn the appeals court, the Justice denied the Government’s application to vacate the stays.

Real world impact

The denial keeps the segregation rule from taking effect for now, so dealers are not yet required to segregate customer payments. Customers remain partly protected by other Commission rules and by the bonds the appeals court ordered. The ruling is temporary and could change if the Supreme Court agrees to review the regulation.