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.
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