The Chamber of Commerce and the Investment Company Institute have appealed a judge's decision that allows the Commodity Futures Trading Commission to begin new oversight of mutual funds and exchange traded funds that invest in commodity futures, swaps and options.

Earlier this year, the CFTC removed established exemptions for registered investment companies (RICs) once they exceed established thresholds for commodity investments. RICs can utilize futures, options and swaps only for “bona fide hedging,” unless the initial margins and premium for non-hedging activities do not exceed 5 percent of the fund's liquidation value. Otherwise, they must register with the CFTC as commodity pool operators and adhere to new reporting, disclosure, and recordkeeping requirements. As CPOs, they must also become members of the National Futures Association, a self-regulatory organization, and meet its additional compliance rules and licensing examinations.

The two industry groups are appealing, in U.S. Court of Appeals for the District of Columbia Circuit, a Dec. 12 decision by U.S. District Judge Beryl Howell that validated the amendments to the CFTC's Rule 4.5 under the Commodity Exchange Act. In their initial lawsuit, as well as the appeal filed on Dec. 27, ICI and the Chamber protest what they say would be an overlapping, potentially conflicting regulatory regime for advisers as the CFTC adds its efforts to existing oversight by the Securities and Exchange Commission. They argue that the CFTC's amendments are “arbitrary and capricious” and violate the Administrative Procedure Act.

“Nothing in the District Court's decision changes the fact that the CFTC did not adequately consider alternative approaches to its flawed and overly-broad approach, which will only inject more confusion into our capital markets without offering any clear benefits to investors,” David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, said of the appeal.

In a statement, ICI President and CEO Paul Schott Stevens called the District Court decision “deeply flawed” and said it “harm the many shareholders of registered funds that will bear the costs of overlapping regulation by two agencies.”

Under the CFTC's rulemaking, investment advisers to registered investment companies if they do not meet exclusion criteria, would have to register as commodity pool operators by Dec. 31. A complete timeline for new reporting obligations has yet to be finalized and the CFTC has allowed delayed compliance, until June 30, 2013, for Fund of Funds operators.