§27d Administration of the Predominance Test

Summary

The Commodity Futures Trading Commission (CFTC) cannot treat or regulate a hybrid instrument under the Commodity Exchange Act unless it makes a rule that says: the regulation is necessary and appropriate for the public; it follows the Commodity Exchange Act; and the instrument is not mostly a banking product under the law’s “predominance” test. Before starting that rulemaking or making that decision, the CFTC must talk with and try to get agreement from the Board of Governors of the Federal Reserve System about what the instrument is and whether regulating it under the Commodity Exchange Act or banking laws makes sense. The Federal Reserve Board can challenge a CFTC rule or decision in the U.S. Court of Appeals for the D.C. Circuit by filing a petition within 60 days after the rule is published. The court must move the case quickly and takes exclusive control once the record is filed. The court will decide if the product is mostly a banking product and whether applying the Commodity Exchange Act is appropriate based on the history and scope of regulation, without favoring either agency. Filing by the Fed automatically pauses the CFTC action until the court’s final decision. Other injured parties can also ask a court to review the CFTC’s action under the Act’s usual review process.