## Facts

- Government National Mortgage Association (GNMA) mortgage-backed pass-through certificates represented interests in pools of government-underwritten residential mortgages, with GNMA guaranteeing timely payment of principal and interest.
- GNMA certificates were transferable and their market value fluctuated with interest rates.
- GNMA certificates qualified as both “securities” under federal securities laws and “commodities” under the Commodity Exchange Act (CEA), creating overlapping regulatory concerns.
- The Board of Trade of the City of Chicago traded GNMA futures.
- The Chicago Board Options Exchange (CBOE) proposed rule changes to list exchange-traded offset options on GNMA certificates (options contracts traded without transferring GNMA certificates at trade execution).
- The SEC approved the CBOE’s proposed rule changes.
- The Board of Trade petitioned for review, seeking to set aside the SEC’s approval on the ground that the CEA and the Commodity Futures Trading Commission (CFTC) controlled GNMA options trading and that such options were prohibited absent CFTC authorization.

## Issues

1. Whether the SEC had authority to approve exchange trading of options on GNMA certificates given the CEA’s allocation of authority to the CFTC over commodity options and futures-related instruments.
2. Whether, pending further CFTC action, trading in options on GNMA certificates was prohibited such that the SEC could not independently permit it.

## Decision

- The Seventh Circuit granted the petition for review and set aside the SEC’s order approving the CBOE rule changes.
- The court held that, pending further action by the CFTC, all trading of options on GNMA certificates was prohibited.
- The court held that the SEC lacked independent jurisdiction to permit GNMA options trading where the CEA vested exclusive authority in the CFTC over the relevant category of options.

## Legal Principles

- When Congress grants the CFTC exclusive jurisdiction over commodity futures and related options, that allocation controls even if the underlying instrument also falls within the definition of a security.
- Where the CEA and the CFTC’s regulatory posture impose a prohibition or moratorium on commodity options absent affirmative CFTC authorization, another agency may not authorize exchange trading that would bypass that scheme.
- The SEC’s general authority over securities and securities options does not extend to approving options trading that the CEA places within the CFTC’s exclusive domain and that the CFTC has not permitted.

## Conclusion

The court vacated the SEC’s approval of CBOE trading in GNMA options, ruling that the CEA placed GNMA options within the CFTC’s exclusive authority and that such options could not be traded unless and until the CFTC took further action authorizing them.


Bd. of Trade of Chi. v. SEC, 677 F.2d 1137 (7th Cir. 1982)