## Facts

- In 2010, Congress enacted the Dodd-Frank Act. Title VII expanded the Commodity Futures Trading Commission’s (CFTC) authority to regulate the swaps market.
- Congress added Commodity Exchange Act (CEA) § 2(i), 7 U.S.C. § 2(i), providing that Title VII requirements generally do not apply to activity outside the United States unless it has a “direct and significant” connection with, or effect on, U.S. commerce.
- Over the next several years, the CFTC issued multiple Title VII swaps rulemakings. Many of those rules did not squarely state how they would apply to cross-border transactions and foreign entities.
- On July 26, 2013, the CFTC published an “Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations” (the Cross-Border Guidance, also called the Cross-Border Action), describing how the Commission planned to interpret and apply § 2(i) in administering the Title VII rules, including through substituted compliance in some situations.
- On December 4, 2013, Securities Industry and Financial Markets Association (SIFMA), International Swaps and Derivatives Association (ISDA), and the Institute of International Bankers (IIB)—trade associations representing swaps-market participants—sued the CFTC under the Administrative Procedure Act (APA) and the CEA.
- Plaintiffs sought vacatur of the Cross-Border Guidance and partial vacatur of certain Title VII rules, arguing (among other things) that: (i) the Guidance operated like a binding legislative rule but was issued without APA notice-and-comment procedures; and (ii) the CFTC’s underlying rulemakings did not adequately consider costs, benefits, and cross-border effects, as required by the CEA and the APA.
- The parties filed cross-motions for summary judgment, placing both the status of the Guidance and the validity of parts of the underlying swaps rules before the court.

## Issues

1. Whether the CFTC’s Cross-Border Guidance functioned as a binding legislative rule that required APA notice-and-comment rulemaking, or instead was a nonbinding interpretive rule or policy statement.
2. Whether, and to what extent, plaintiffs could obtain APA relief directed at cross-border application of the Title VII swaps rules based on the Guidance and § 2(i).
3. Whether the CFTC adequately considered and explained the costs, benefits, and cross-border effects of certain Title VII swaps rules, as required by the CEA and the APA.

## Decision

- The court held that the Cross-Border Guidance was an interpretive policy statement rather than a legislative rule and therefore did not have to be adopted through notice-and-comment rulemaking.
- The court declined to vacate the Guidance on the theory that it independently imposed new legal duties; instead, it treated the Guidance as a statement of how the agency planned to apply § 2(i) when administering existing rules.
- The court upheld portions of the CFTC’s Title VII regulatory framework and rejected broad requests to block all cross-border application of swaps requirements based on the Guidance alone.
- At the same time, the court found defects in the CFTC’s reasoning for parts of certain Title VII rulemakings as applied in cross-border settings, concluding that the agency had not adequately analyzed or explained costs and benefits (including effects linked to extraterritorial application) in some respects.
- The court granted limited relief directed at those deficient portions of the challenged rules (including remand and/or setting aside specific applications), while otherwise denying sweeping vacatur and injunctive relief.

## Legal Principles

- Legislative rules that create binding obligations generally require APA notice-and-comment procedures; interpretive rules and general policy statements that describe an agency’s intended approach ordinarily do not.
- In distinguishing legislative rules from policy statements, courts examine whether the agency action uses mandatory terms, removes discretion, or is treated as binding in practice.
- Under the APA, a court may set aside agency action that is arbitrary, capricious, or inadequately explained, including where the agency fails to respond to significant concerns raised during the rulemaking process.
- CEA § 2(i) limits extraterritorial reach by requiring a “direct and significant” U.S. connection or effect; the agency may interpret and apply that statutory standard when administering Title VII rules.
- The CEA’s cost-benefit requirement (including consideration of effects on efficiency, competition, and financial integrity) requires a reasoned analysis; when extending regulatory requirements beyond U.S. borders, the agency must meaningfully address cross-border impacts to the extent they bear on costs and benefits.
- Remedies in APA cases can be tailored; courts may leave a guidance document in place while remanding or setting aside discrete regulatory applications found defective.

## Conclusion

SIFMA v. CFTC upheld the CFTC’s Cross-Border Guidance as a nonbinding policy statement that could be issued without notice-and-comment rulemaking, but it granted targeted relief against parts of certain Title VII swaps rules where the CFTC’s cost-benefit analysis and explanation were inadequate for cross-border application under the CEA and the APA.


Securities Industry & Financial Markets Association v. CFTC, 67 F. Supp. 3d 373 (2014)