Legislation to ensure that certain Dodd-Frank requirements do not overburden manufacturers advanced on Wednesday when the House Agriculture Committee approved legislation to reauthorize the Commodities Futures Trading Commission (CFTC) (H.R. 4413) that included a number of NAM end-user priorities. Prior to consideration of the bill, the NAM joined the Coalition for Derivatives End-Users in urging committee members to approve the bill.
As approved by the committee, H.R. 4413 would ensure that manufacturers and other nonfinancial end-users would not be subject to mandatory margin requirements when hedging business risk. This provision is similar to a bill (H.R. 634) that already passed the House overwhelmingly last year with 411 votes, but has yet to be considered in the Senate even though the bill (S. 888) is backed by 20 Senators from both sides of the aisle. A recent survey finds that without this fix, a company that uses derivatives to hedge commercial risk may be forced to sideline approximately $125 million, negatively impacting business investments, R&D, and job creation.
Manufacturers that use a centralized treasury unit or hedging center would also be relieved of unintended consequences stemming from Dodd-Frank in the Agriculture Committee’s bill. Currently, companies that use this centralized structure, a best practice in corporate treasury, may be forced to clear and margin their hedges since this unit may be considered a “financial entity,” preventing them from taking advantage of the end-user exemptions provided by Dodd-Frank. The CFTC reauthorization includes language stemming from a bipartisan bill (H.R. 677) which was approved by the Committee last year.
The CFTC reauthorization also included provisions from another bill (H.R. 3814) the NAM has supported to require the CFTC take an affirmative action before lowering the swap dealer de minimis threshold. Without action, the exemption level for engaging in a de minimis quantity of swap dealing automatically drops from the current $8 billion threshold down to $3 billion in 2018.
This bill was approved overwhelmingly by a voice vote, and will next move to the House floor. The NAM is also advocating for the Senate to include these important pro-manufacturing issues in their version of the CFTC reauthorization.