The Clock Keeps Ticking for Derivatives End-Users

By March 14, 2013Taxation

End-users continue to watch the time tick by on the countdown clock to the implementation of various aspects of Dodd-Frank while still awaiting clarity on a couple of critical – and costly – regulatory burdens which currently seem poised to impact them. In an ongoing effort to help find that clarity, the NAM has been working diligently as a leading member of the Coalition for Derivatives End-Users on both the hill and before the regulatory bodies implementing the law. Today we hope marked a positive step forward in the House Agriculture Committee’s hearing, “Examining Legislative Improvements to Title VII of the Dodd-Frank Act,” which featured testimony by NAM member and Honeywell International Assistant Treasurer Jim Colby. Colby testified on behalf of Honeywell and the Coalition — in support of coalition-backed legislation H.R. 634, which would provide a clear exemption from margin requirements for non-financial end-users as was the original intent of Congress.

The NAM has long advocated for this legislative fix and has worked longside the Coalition at the regulatory bodies urging that the rules promulgated under Dodd-Frank include this exemption. During the last Congress, the same legislation cleared the House overwhelmingly with over 370 votes in favor and withered in the Senate despite bipartisan support. We’re hopeful that today’s hearing and Ag Chairman Lucas’ indication that the Committee will soon move to mark up the bills included in the hearing will result in quick action that will allow the bill to be considered by the House Financial Services Committee and by the full House of Representatives in the near term.

The hearing also featured testimony in support of another NAM and Coalition endorsed bill, H.R. 677 which would exempt inter-affiliate and centralized hedging center unit swaps from clearing and other regulatory requirements intended for market-facing swaps. This legislation also clarifies a provision in Dodd-Frank that failed to distinguish internal risk management techniques in the form of inter-affiliate swaps from external market facing swaps. Many companies today use centralized hedging centers or centralized treasury units as a risk management tool – one that is often considered a best-practice. Under Dodd-Frank it this structure wasn’t contemplated and today without a change, the internal swaps a company does between these centers and their own affiliates would be subject to the same costly reporting and clearing requirements as external swaps with a swap dealers or a major swap participant. Further, the bill ensures that non-financial end-users who utilize these centralized hedging centers are allowed to use the end-user clearing exemption. Without this clarification, these centralized hedging and treasury centers wouldn’t qualify for the end-user clearing exemption because they would be deemed financial entities since their primary function is to engage in financial transactions for the corporate parent.

We are pleased that the committee also considered H.R. 677 today and hope that it too will be marked up and ready for review by the House Financial Services Committee and the full House in the near-term. A predecessor of this bill moved in tandem with a margin bill last year and also passed the House with over 350 votes. We hope to see that replicated soon.

So, while the clock ticks, hopefully today’s hearing is the first steps towards fixing these two burdensome problems casting a shadow over sound risk management practices employed by end-users.

Carolyn Lee

Carolyn Lee

Executive Director of The Manufacturing Institute at The Manufacturing Institute
Carolyn Lee is Executive Director of The Manufacturing Institute, the non-profit affiliate of the National Association of Manufacturers (NAM), the nation’s largest industrial trade association. Carolyn drives an agenda focused on improving the manufacturing industry through its three centers: the Center for the American Workforce, the Center for Manufacturing Research, and the Center for Best Practices.

In her role, Carolyn leads the Institute’s workforce efforts to close the skills gap and inspire all Americans to enter the U.S. manufacturing workforce, focusing on women, youth, and veterans. Carolyn steers the Institute’s initiatives and programs to educate the public on manufacturing careers, improve the quality of manufacturing education, engage, develop and retain key members of the workforce, and identify and document best practices. In addition, Carolyn drives the agenda for the Center for Manufacturing Research, which partners with leading consulting firms in the country. The Institute studies the critical issues facing manufacturing and then applies that research to develop and identify solutions that are implemented by companies, schools, governments, and organizations across the country.

Prior to joining the Institute, Carolyn was Senior Director of Tax Policy at the NAM beginning in 2011, where she was responsible for key portions of the NAM’s tax portfolio representing the manufacturing community on Capitol Hill and in the business community and working closely with the NAM membership. She served as the Director of Legislative and Government Affairs at the Telecommunications Industry Association, Manager of State and Federal Government Affairs for 3M Company, and in various positions on Capitol Hill including as Legislative Director for former U.S. Senator Olympia Snowe (R-ME), and as a senior legislative staff member for former U.S. Rep. Sue Kelly (R-NY).

Carolyn is a graduate of Gettysburg College in Gettysburg, Pennsylvania graduating with a B.A. in Political Science. She resides in Northern Virginia with her husband and three children.
Carolyn Lee

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