Tag: Dodd-Frank

Another Opportunity to Fix Dodd Frank

Let’s start the year off on an optimistic note…. Here’s to hoping that 2014 is the year that a bipartisan Congress fixes a number of flaws in the Dodd-Frank Wall Street Reform Act.

As we’ve talked about before, 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 companies that use derivatives to manage risk. 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 manufacturers who utilize derivatives to mitigate commercial risk and not for speculative purposes. The rationale is simple, manufacturers did not contribute to or cause the financial crisis that triggered Dodd-Frank, and as several regulators have stated before Congress, do not pose a systemic risk. Thus, regulators’ efforts should be focused elsewhere.

So far we’ve made some headway… Bipartisan bills (H.R. 634/S.888) moving through Congress would exempt end-users from margin requirements. In fact, H.R. 634, led by Reps. Grimm (R-NY) and Peters (D-MI) passed the House with a huge bipartisan vote last June with only 12… yes, 12 votes in opposition. The Senate companion bill (S.888) has 18 cosponsors from both sides of the aisle and two strong champions in the bipartisan team that is leading the effort – Sens. Johanns (R-NE) and Tester (D-MT). And that’s not all. H.R. 677, the Inter-Affiliate Swap Clarification Act by Reps. Stivers (R-OH) and Fudge (D-OH) was approved by the House Financial Services Committee also with broad bipartisan support.

Earlier this week, Rep. Hudson (R-NC) introduced legislation addressing another problem we have talked about before, the looming change in CFTC’s criteria for companies to register as a swap dealer. The bill, H.R. 3814, would require that the CFTC take an affirmative action to change today’s de minimis level of $8 billion. Without action, the CFTC’s rules currently lower the threshold to $3 billion by 2018. It seems odd to us that the CFTC has seen fit to set a de minimis level at a reasonable level and while doing so then set into motion an automatic drop in the level by over 60% several years in advance. One would think that regulators would prefer to establish the threshold and then go back and reconsider what the appropriate level will be in the economy of some future year. The bill by Rep. Hudson, like the other ones referenced above, is straightforward and a common sense solution to problems arising from the enactment of the massive Act known as Dodd-Frank.

Manufacturers continue to work to encourage members of both parties in both the House and Senate to move these bills in a timely manner.

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Manufacturers Oppose Proposed Pay Ratio Rule

Yesterday the NAM submitted comments to the SEC in response to their proposed rule implementing the so-called pay ratio requirement that was enacted as part of the Dodd-Frank Act. Manufacturers believe that requiring companies to regularly disclose the ratio of employees’ median pay to the compensation of the company’s chief executive represents a costly and onerous administrative burden on companies that will not produce useful information for investors or advance shareholder knowledge. As the SEC itself points out in the proposal, ““neither the statute nor the related legislative history directly states the objectives or intended benefits of the provision or a specific market failure, if any, that is intended to be remedied.” Yet, despite the absence of a clear benefit, companies will be required to incur significant financial cost, dedicate substantial man-hour resources and overcome numerous administrative challenges in order to attempt to comply with the proposed rule.

Manufacturers are concerned that the idea that a single statistic, like the pay ratio, could be an indicator of a company’s approach to compensation practices, business strategy, or hundreds of other decisions that comprise their business plan is false and overly simplistic – however this reality did not prevent Congress from including this requirement in the Dodd-Frank Act and now manufacturers are facing a compliance hurdle that will put them at a disadvantage to any company that is not required to comply. This issue is just another example of the real and costly impact that the Dodd-Frank Act – enacted to ensure that the financial crisis of 2007-2008 is not repeated –has had on manufacturers who did not cause the financial crisis.

Manufacturers are proud of their commitment to their workforces and want to dedicate resources to competing, growing and investing in their companies, their products and their employees and are concerned about regulatory burdens that will distract them from this mission. Manufacturers hope that the SEC will re-examine this proposed rule and that the Congress will act swiftly to pass H.R. 1135 by Rep. Huizenga (R-MI) to repeal this onerous burdensome requirement and in doing so ensure that manufacturers can spend their time and resources on developing their workforces and their products and not on complying with complicated and costly regulations.

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Manufacturers Encourage the House to Take Up Bill Eliminating Pay Ratio Burden

Last week, the House Committee on Financial Services voted 36-21 to advance legislation introduced by Rep. Bill Huizenga (R-MI) to repeal an unworkable –and unnecessary—Dodd-Frank disclosure requirement facing manufacturers.  We urge the House to take up this common-sense bill ASAP.

At issue is a misguided provision buried in the 2010 Dodd-Frank legislation that requires public companies to disclose — in every SEC filing — the ratio between the CEO’s pay and the total median compensation for all other employees.

Manufacturers are concerned that accurately calculating the total compensation for all employees will cost countless man hours and hundreds of millions of dollars. For example, a company with global operations will face significant compliance costs determining the pay for employees working in different countries, where the definition of compensation can vary drastically. These employees may also work for a foreign affiliate where the data is not as readily accessible to the parent company.

Adding to manufacturers’ frustration is the fact that it is hard to see what corresponding benefits shareholders will gain from the pay ratio disclosure. CEO compensation is already disclosed, and making comparisons among companies’ pay ratios could be misleading as the numbers do not take into account the varying industries, types of jobs, and diverse geographic regions that create pay differences. The costs of the pay ratio requirement on American manufacturers clearly outweigh the benefits – something that should have been considered before the provision was hastily inserted in the Dodd-Frank Act without so much as a congressional hearing to debate the issue.

The SEC has yet to propose rules implementing Section 953(b), but the NAM wrote to the agency last year requesting that the pay ratio rule be crafted in way that minimizes the regulatory burden on the business community. To read the letter, click here.

 

The NAM applauds the House Financial Services Committee for advancing legislation to repeal the pay ratio requirement, and urges Members of Congress to vote in favor of the Burdensome Data Collection Relief Act (H.R. 1135) when it is considered by the full House of Representatives, hopefully as soon as possible.

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NAM Leads Push for Solutions for Derivatives End Users

On Tuesday, June 11th, the NAM along with the Coalition for Derivatives End-Users—of which the NAM is a leading member—organized a fly-in of corporate treasury executives advocating for Senate consideration of H.R. 634/S.888 and H.R. 677. The group, which included nearly two dozen representatives from 15 companies along with other trade associations, spent the day lobbying Senate offices to support the legislation. The first bill, H.R. 634/S.888, would provide a statutory exemption from margin requirements for derivatives end users. H.R. 677 would exempt internal, inter-affiliate trades from being treated for regulatory purposes in the same manner as market-facing trades and also ensure that centralized treasury units can take advantage of the clearing exemption available to non-financial end users when they are hedging commercial risk.

The morning of the event, the lead Democratic Senate sponsor of S. 888, Sen. Jon Tester (D-MT), joined the kickoff breakfast to discuss the status and outlook for the legislation. The Senator was followed by a discussion with is staff from Sen. Mike Johanns (R-NE) the bill’s lead sponsor who joined Sen. Tester’s staff to discuss strategy and the key messages for the day’s events. The group then set off for a day’s worth of visits, meeting with leadership and committee staff as well as staff in offices who have previously opposed this legislation.

Also that morning, the NAM sent to every member of the House of Representatives a coalition letter urging passage of the two bills. The letter was being sent in advance of the anticipated vote on H.R. 634 to be held in the House the following day. Manufacturers are thrilled that the House passed H.R. 634 by a strong bipartisan vote of 411–12. This vote, which is even stronger than last year’s tally of 370–24, sends the bill to the Senate to await action with a clear demonstration of the overwhelming support for this bipartisan legislation.

The NAM will continue to lead the fight to get the Senate to move these two critical bills in the near term. Manufacturers are encouraged by the overwhelming majority in support of the margin bill in the House. And we are committed to keeping up the fight for this exemption which was the clear intent of the authors of the Dodd-Frank Act as the Congressional Record’s reporting of the floor debate makes clear. Simply put, the portions of the bill that sought to regulate speculative derivatives trading were never intended to negatively impact commercial end users who use derivatives to hedge commercial risk. H.R. 634/S. 888 and H.R. 677 will ensure that nonfinancial end users—like manufacturers—who use derivatives to hedge commercial risk do not face increased costs of doing business because they use hedges as a risk-management strategy.

We will continue to press for swift Senate consideration of the H.R. 634/S. 888, margin bill which are now pending and we will continue to press for progress on H.R. 677 in the coming weeks.

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

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. (continue reading…)

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Dodd-Frank the “Gift” that Keeps “Giving”

Even as Washington’s attention careens from one fiscal showdown to the next—which is reasonable with $85 billion in spending cuts due to go into effect in just a few days coming on the heels of December’s Fiscal Cliff–many manufacturers also await what could be an avalanche of regulations to implement the infamous Dodd-Frank Wall Street Reform Act that could prove to bury these derivatives end-users in excessive costs and regulatory burdens to “fix” aspects of the financial crisis that they neither caused nor contributed to.

For the past two and a half years since the passage of this voluminous statute, a number of unintended consequences of the 850 page statute have come to light as derivatives end-users—who use derivatives as a way to manage commercial risk and NOT for speculative purposes—come to recognize how their day to day business practice might be caught up in a slew of regulations from an array of regulators. These rulemakings have the potential to undo best practices, efficiencies and risk management strategies to improve business functions.

To combat this, for the past several years the NAM has served as a steering committee member of the Coalition for Derivatives End-Users working with a coalition of business associations and hundreds of end-user companies to mitigate the impact on end-users of Dodd-Frank’s implementation. The NAM drove an effort during the lame duck Congressional session to seek passage of two bills critical to manufacturers that use derivatives to manage risk.  The effort has served as a springboard for the Coalition’s activity this year.

Already this year, the Coalition has met with the staff, the Chairman of the CFTC as well as several of the Commissioners seeking relief from two of the most time sensitive concerns facing end-users including: the upcoming deadline of April 10th when, without no-action relief from the CFTC, end-users will need to begin reporting their inter-affiliate trades to a swap data repository within 48 hours of the trade; and, a June 10th deadline financial institutions are required to begin clearing trades – a deadline that will impact end-users who use centralized hedging centers to centralize inter-affiliate trades and use that hedging center to conduct external trades unless the CFTC provides exemptive relief to these centralized hedging units of non-financial end-users. The Coalition is working this week to submit requests for these relief actions to the CFTC.

Simultaneously, we continue our legislative effort and already this year the two priority end-user bills – one providing a clear end-user exemption from margin requirements and one exempting inter-affiliate trades from being treated in the same manner as external, market facing trades and rectifying the centralized hedging center issue described above. Those bills, H.R. 634 and H.R. 677, were introduced earlier this month in the House by bipartisan groups of members of both the House Agriculture and House Financial Services Committees–and we hope there will be companion legislation introduced in the Senate in the near term.

The NAM continues to lead both legislative and regulatory solutions to address the challenges facing end-users. Company participation in these efforts is critical to make the case for action and the NAM will continue to coordinate opportunities for members to weigh in on these matters.

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End-User Community Receives Bipartisan Support from House Ag Committee

The House Committee on Agriculture took up several pieces of bipartisan legislation that would help prevent unnecessary and harmful regulation of derivatives end-users – and ensure the original intent of Congress is upheld. There has been growing concern in the end-user community that proposed regulations to implement the Dodd-Frank bill could go beyond the intent of Congress and prove damaging to economic growth and U.S. competitiveness.

The bills include: H.R. 2682, the Business Mitigation and Price Stabilization Act; H.R. 2779, to exempt inter-affiliate swaps from certain regulatory requirements;  H.R. 3527, Protecting Main Street End-Users from Excessive Regulation; H.R. 1840, requiring the Commodity Futures Trading Commission to include a cost-benefit analysis of their regulations, and; H.R. 2586, the Swap Execution Facility Clarification Act.  Each offer solutions that would help prevent unnecessary and harmful regulation of derivatives end-users. The NAM stands in strong support of all of them.

Fortunately the bills passed out of committee with bipartisan support  and hopefully the momentum necessary to be on the house floor soon. These bills would ensure that any negative impacts of the Dodd-Frank implementation on end-users can be mitigated.

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The Facts Behind the Dodd-Frank Conflict Minerals Requirement

There has been a lot of chatter in the blogosphere recently about David Aronson’s op-ed “How Congress Devastated Congo,” in the New York Times on Monday concerning the impact that the Dodd-Frank legislation provision (Section 1502) on conflict minerals is having on the economy and workers of the Democratic Republic of the Congo (DRC).  

Many activists claim that the Dodd-Frank requirement that companies disclose their use of conflict minerals (tin, tungsten, tantalum and gold) in their products is essential to ending the horrific violence taking place there, even though there is relatively little evidence that will be the case.  What is of concern to many stakeholders across the spectrum is the potential for the provision creating an embargo on minerals from the DRC and surrounding countries, causing further economic devastation. 

Paul Kavanaugh, writing for Bloomberg BusinessWeek, reported July 28, “The new rules left tens of thousands of people out of work, according Paul Yenga Mabolia, head of Promines, a World Bank program assisting Congo’s mining industry. ‘Nobody was prepared and there was no program to alleviate the impact of the law,’ he said by phone from Kinshasa, Congo’s capital, yesterday. ‘Almost everything came to a standstill.’” (continue reading…)

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Conflict Mineral Rules: Another Burden on Automakers

The Detroit News editorializes on the new rules required by the Dodd-Frank financial regulation law to require publicly traded companies to report their use of select minerals that might come from the regions of Africa involved in the Congo war. The paper analyzes  “Another burden on automakers,” with the secondary headline, “Demanding the industry trace the origin of the metal used in car parts adds billions in costs”:

Proposed new rules requiring manufacturers — in particular auto parts suppliers — to identify the origin of some of the common minerals in their products could impose heavy additional costs on an industry that’s just now getting its head above water. The well-meaning goal of the rules is to limit the use of minerals from war-ravaged central Africa, but the expense could impose additional hardships here….

Rick Goss of the U.S. Information Technology Council, at a meeting on the issue in Washington last month, reportedly called the law a “sledgehammer” that could create what amounts to an embargo on mineral products from a major portion of Africa. Once the metal is refined in smelters, Goss was quoted as saying, there is no way of identifying the country of its origin. The only way to the assure the SEC that the metals don’t come from central Africa, he said, is to refuse to do business with anyone “who touches central Africa,” the Voice of America reported….

The law ought to be repealed. The auto industry and its suppliers shouldn’t be encumbered with the duty of solving the internal problems of central Africa.

At the very least, any regulations ought to allow manufacturers to report minerals as of an “indeterminate origin” until they are able to develop techniques for tracing and indentifying the raw materials in a more cost effective manner.

The National Association of Manufacturers submitted formal comments (here) to the Securities and Exchange Commission on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect.

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‘Conflict Minerals’ Rule Will Burden Auto Suppliers, Economy

The Detroit News reports, “Suppliers warned about ‘conflict minerals’“:

Washington — New disclosure rules for minerals from war-torn Africa could impose a major burden on auto suppliers.

Six of the largest automakers have warned suppliers to prepare for federal regulations requiring them to disclose whether they use “conflict minerals” in auto parts.

The joint letter from the heads of purchasing from General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. told suppliers that the rule will require them to disclose the use of minerals from the Democratic Republic of the Congo and neighboring countries.

Conflict minerals are defined as tin, tantalum, tungsten, or gold. The Dodd-Frank Wall Street Reform and Consumer Protection Act required the Securities and Exchange Commission to propose regulations to require public companies to supply detailed reporting of their conflict mineral controls and sourcing. Challenged by the difficulty of the task — consider the complexity of global supply chains — the SEC recently delayed implementation of the rule until the second half of this year.

The National Association of Manufacturers submitted formal comments (here) to the SEC on March 2, estimating it will cost industry $9-16 billion to put the new regulations into effect and urging the SEC and Obama Administration to conduct a more rigorous analysis of the costs. The impact on supply chains — so important to the auto industry — is a key concern. As the NAM summarized in a briefing document for the SEC:

While the new reporting mandate only applies to companies required to report to the SEC, we expect these requirements will rapidly be passed through the entire supply chain. The requirements will effectively force suppliers not subject to SEC reporting to maintain extensive records of their source materials, costing them thousands of dollars to establish and maintain these records. The NAM believes that the proposed rule is a significant rulemaking and will cost U.S. industry between $9-16 billion to implement.

This memo from Dykema Gossett addresses the central issues, as well: “Conflict Minerals Act will have widespread impact on global supply chain.”

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