Second Circuit Holds a Broker Does Not Have Standing as a Plaintiff Under the Commodity Exchange Act

Per Klein & Co. Futures, Inc. v. Bd. of Trade of City of N.Y.>/a>, 464 F.3d 255 (2d Cir. Sept. 18, 2006):

[The Commodity Exchange Act (CEA)] § 22 enumerates the only circumstances under which a private litigant may assert a private right of action for violations of the CEA. . . . The text . . . requires that a putative plaintiff fall within one of the four required relationships set forth in § 22(a)(1)(A-D).

. . .

The common thread of these four subdivisions is that they limit claims to those of a plaintiff who actually traded in the commodities market. Specifically, the remedies afforded by CEA § 22(b) are available only to a private litigant "who engaged in ... transaction[s] on or subject to the rules of" a contract market. Id. § 25(b)(1)-(3). . . .

Klein does not fall within any of the required subdivisions of § 22(a)(1)(A)-(D). . . .

. . . . Klein functioned merely as a broker or agent that earned commissions for handling its customers trades. As a clearing member, Klein cleared their trades and was obligated to post margins for them as required. Under NYCC Rules governing clearing members, Klein was liable for its own failure to post the required margin on its customers' positions, whether or not Klein collected that margin from defaulting customers such as First West. In view of the provisions of sections 22(a) and (b) expressly limiting the categories of persons that can seek remedies under the statute we conclude, as did the court below, that a plaintiff such as Klein who falls outside those categories lacks standing.