Board of Trade of City of Chicago v. Securities and Exchange Commission
United States Court of Appeals for the Seventh Circuit
677 F.2d 1137 (1982)
- Written by Brett Stavin, JD
Facts
The Board of Trade of the City of Chicago (Chicago Board of Trade) (plaintiff) was a commodity exchange that, since 1975, traded futures on Government National Mortgage Association (GNMA) mortgage-backed pass-through certificates pursuant to regulatory oversight from the Commodity Futures Trading Commission (CFTC). GNMA certificates were financial instruments that aggregated payments from mortgage pools guaranteed by the federal government. The payments of principal and interest under a GNMA certificate were fixed, but the value of a certificate fluctuated based on market interest rates. Owners of GNMA certificates therefore assumed the risk of interest-rate fluctuation. The owners sometimes sought to hedge that risk by entering into futures agreements with speculators. GNMA certificate futures consisted of contractual obligations to make or take delivery of GNMA certificates at particular future dates and prices. In contrast to GNMA certificate futures, a separate exchange, the Chicago Board of Exchange, Inc. (CBOE) sought to offer trading in a distinct but related derivative, GNMA certificate options. In such options, option purchasers obtained the rights, but not the obligations, to buy or sell certain quantities of GNMA certificates at specific prices prior to specified dates. The seller of an option received a premium for bearing the risk of having to fulfill the obligation. In 1981, the Securities and Exchange Commission (SEC) (defendant) proposed a rule change to allow the CBOE to trade GNMA certificate options, whereas the SEC previously had prohibited such trading. The Chicago Board of Trade filed a complaint against the SEC. The Chicago Board of Trade claimed that the SEC had no jurisdiction to regulate GNMA certificate options because the certificates were commodities and the CFTC therefore had exclusive jurisdiction over such products.
Rule of Law
Issue
Holding and Reasoning (Cummings, C.J.)
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