Manufacturers, as derivatives end-users, have been working over the past several years to prevent the implementation of the Dodd-Frank Act from having a negative and costly impact on end-users. On issues like margin requirements, inter-affiliate trades and the use of centralized treasury units, the NAM has fought against new regulations that will create new costs and burdens on end-users who utilize derivatives to mitigate commercial risk and not for speculative purposes. The rationale is simple, end-users did not contribute or cause the financial crisis that was the impetus for Dodd-Frank and as several regulators have stated before Congress, end-users do not pose a systemic risk, regulators efforts should be focused elsewhere.
A recent report from Abraham Energy Report highlights yet another threat to end-users. Specifically, rules issued by the Commodity Futures Trading Commission (CFTC) that will drastically limit the use of hedging by energy businesses and will impact the broader economy through higher costs and fewer risk mitigation options for all energy users. The CFTC now requires any firm engaged in over $8 billion annually in commodity swaps to register as a swap dealer that makes them subject to a regulatory regime more similar to rules for financial institutions than end-user rules. To date only a few firms have been forced to register as swap dealers. That will change though when the threshold drops, as it is scheduled to do by 2018. The lower threshold will capture a much broader group of companies and will impose greater costs throughout the economy. In another effort to expand their regulatory domain, the CFTC is also seeking to further regulate the energy market by treating volumetric options of commodities, including oil and gas, as swaps and subject to CFTC regulation. America is on the cusp of an energy boom poised to create a competitive advantage for American manufacturers. That is, unless regulators get in the way.
All of these end-user issues should be reviewed and considered as Congress reauthorizes the Commodity Exchange Act (CEA) and the Commodity Futures Modernization Act. While Congress has been stymied in recent months on myriad issues of importance to manufacturers, one thing that both parties in both bodies should agree on is that action needs to be taken to lessen the impact of harmful regulation on the growth of the economy and jobs. All of these issues should be addressed in the upcoming reauthorization process and manufacturers will continue to urge Congress to do so.
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