(Reuters) - U.S. Senator Carl Levin and 18 other senators have filed a friend-of-the-court brief to help the U.S. commodities regulator defend its rules on position limits in oil markets aimed at preventing excessive speculation.
The U.S. Commodity Futures Trading Commission passed the rules in October, but industry groups have sued to stop the rules from taking effect, saying they would irreparably harm the marketplace.
Levin, a Michigan Democrat, and the other senators argued in their amicus brief that seven years of congressional studies back up the need for position limits. They rejected the industry groups' contention that the 2010 Dodd-Frank reform law did not explicitly require the CFTC to put the rules in place.
"Oil supplies are plentiful and demand is down, so high gas prices can't be explained by ordinary market forces of supply and demand," Levin said in a statement.
"The financial industry slapped the CFTC with a lawsuit claiming Congress never meant for the trading limits to prevent excessive speculation to be mandatory, but our amicus brief shows that is exactly what we meant and what the law requires."
The senators who filed the brief were Democrats and one Independent.
The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) filed their legal challenge in December.
The CFTC's groundbreaking rule, put in place to restrict the number of contracts a trader can hold in commodities such as gold and oil, was narrowly approved by the agency's five commissioners on October 18 by a vote of 3-2.
SIFMA and ISDA argue that the regulations would force their members to drastically alter their businesses, cost them tens of millions of dollars, and send customers fleeing.
They also slammed the agency for failing to review thoroughly the economic impact of the rules on markets, which thrive on the liquidity provided by traders with big positions, they said.
Their suit asks the court to block temporarily the controversial new rules - set to take effect later this year - and strike them down completely.
Judge Robert Wilkins of the U.S. District Court for the District of Columbia said at a hearing in February that he would rule swiftly on the short-term block.
Bart Chilton, a Democratic Commissioner and outspoken proponent of curbs on speculative trading, welcomed the Senators' brief.
"It seems to me that the plain language of the law would be enough to spit out this case, but when you have Senators and Representatives who actually wrote the provision expanding upon the Congressional intent, that's really persuasive," he said in a statement.
The CFTC will implement the limits in two phases. The agency must first finish its swaps definition before it can implement limits for the spot month. The final limits for all contract months can only be set a few months after the agency has collected a year's worth of swaps data, a process that is expected to end in August.
