On Regulating OTC Derivatives, Necessary Restraint

By December 11, 2009Regulations

The U.S. House yesterday by a vote of 304-124 passed an NAM-supported amendment sponsored by Rep. Scott Murphy (D-NY) to H.R. 4173, the Wall Street Reform and Consumer Protection Act, to expand the federal government’s regulation of the financial sector, especially consumer finance. The legislation also further regulates over-the-counter (OTC) derivatives, a tool that manufacturing companies use to manage risk. The National Association of Manufacturers wrote a “Key Vote” letter supporting the Murphy amendment, explaining:

Manufacturers of all sizes use customized OTC derivatives to manage the cost of borrowing or other risks of operating their businesses, including fluctuating currency exchange, interest rates and commodity prices. In today’s challenging economy, these risk management tools help businesses keep operations going, invest in new technologies, build new plants and retain and expand workforces.

Unless amended, H.R. 4173 could unnecessarily subject some end-users to burdensome margin and collateral requirements aimed primarily at those whose activities present risk to the financial system. The Murphy-McMahon-Kratovil Amendment makes clear that end-users do not pose systemic risk, should not be designated as “Major Swap Participants” under the legislation and, therefore, should not be subject to these additional costly requirements. 

Bloomberg also reported on the provision in its story, “House Trims State Powers in Debate on Financial Rules Overhaul.”

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