As They Say, a Half-a-Loaf is Better Than No-Loaf

By April 11, 2013Economy

There has been lots of activity coming out of the CFTC in the last few days surrounding derivatives end-users, providing end-users some answers but still leaving many questions. The activity makes sense as the National Association of Manufacturers (NAM), many of our member companies and the Coalition for Derivatives End-Users had been pleading the case for months for a no-action ruling for end-users from reporting rules for inter-affiliate trades which were set to take effect beginning yesterday.

Late Friday night that relief came in the form of an announcement from the CFTC’s Division of Market Oversight and Division of Clearing and Risk issued a Joint No-Action Relief for swaps between affiliated counterparties from certain swap reporting requirements, “which granted relief from certain reporting requirements and the end-user exemption to mandatory clearing for intra-group swaps involving wholly-owned subsidiaries.”

This no-action ruling provides some end-users with more time to comply with the reporting requirements and others are exempt entirely. Of course while we are very pleased that the no-action relief came, we would have liked to have received it more than a mere three business days before the requirement kicked in.

In the days leading up to the no-action relief being announced, the NAM was one of a handful of participants in a press call with Commissioner Chilton who called for the creation of “The End-User Bill of Rights” which would guaranty certain rights including the “right to reasonable implementation”, a “right to legal certainty”, a “right to clear (or not to clear)” and critically, a “right to margin flexibility and reasonable capital rules.” The NAM thanked Commissioner Chilton for his leadership and attention to end-user concerns and for the attention the whole CFTC has paid to manufacturers who did not contribute to the financial crisis that led to the writing and enactment of Dodd-Frank but who have been affected nonetheless.

The no-action relief came on the heels of the CFTC’s announcement early last week of their Final Regulations Governing Exemption from Required Clearing for Inter-Affiliate Swaps which exempted swaps from certain affiliated entities with a corporate group from the clearing requirements. This rule, although helpful in addressing many end-user concerns including critically exempting clearing for inter-affiliate swaps between non-financial end-users and making clear that these end-users can utilize the end-user exemption, did not address an issue that has become prominent recently – the treatment of centralized treasury (or hedging) centers.

For this clarity, the NAM and others continue to lobby Congress to pass H.R. 677 which would clarify that non-financial end-users who utilize a centralized treasury centers – which are used to improve efficiency and centralize trading expertise – should not be treated as a financial entity and would also be eligible for the end-user clearing exemption. To that end, we are heartened by the action of the House Agriculture Committee who last month unanimously reported out of Committee both H.R. 677 and H.R. 634 which would provide a clear exemption for end-users from margin requirements.

And, just today those bills were the subject of a House Financial Services Capital Markets Subcommittee hearing which allowed the subcommittee to discuss the need for end-users to have clarity and statutory certainty on these important issues. Testifying on behalf of the Coalition was Tom Deas, Vice President and Treasurer of NAM member FMC Corporation. We remain hopeful that these bills will be marked-up and voted out by the full House Financial Services Committee before the end of the month so that we can continue to focus on getting the Senate to move these commonsense bills in the near term.

So, as they say, a half-a-loaf is better than no-loaf if you’re starving for clarity on adhering to myriad Dodd-Frank rules and while many of the CFTC actions in the past week have provided some of the clarity necessary to deal with what were the most time sensitive issues, there are still many more issues that end-users need answers to. The NAM and the Coalition for Derivatives End-Users will continue to advocate for those answers.

Carolyn Lee is senior director of tax policy, National Association of Manufacturers.

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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