Sunday, December 19, 2010

Business Coalition Supports Chambliss-Corker Amendment to Nail Down Commercial End-User Exemption from Dodd-Frank Derivatives Mandate

In a letter to the US Senate, the Coalition of Derivatives End Users urged support for the Chambliss-Corker Amendment to legislation amending the Dodd-Frank Act, which would clarify that derivatives trades by commercial end-users are not subject to margin requirements. It is expected that the amendment, sponsored by Senator Saxby Chambliss (R-GA), Ranking Member on the Agriculture Committee, and Senator Bob Corker R-TN), a leading member of the Banking Committee, will be offered by unanimous consent. The coalition is composed of, among others, the Business Roundtable, the National Association of Manufacturers, and the U.S. Chamber of Commerce.

The amendment is to HR 6398, which passed the House on November 30, 2010 by voice vote. HR 6398 would amend Dodd-Frank to assure continued full FDIC protection for lawyer trust accounts. The current Term Asset Guarantee program under which the FDIC guarantees the total amount of client funds maintained in lawyer trust accounts expires December 31, 2010. The Dodd-Frank Act creates an equivalent program, running for 2 years beginning January 1, 2011, but makes several changes, including a more narrow definition of a covered account. In what appears to have been a drafting error, lawyer trust accounts were not covered under the new program established by the Dodd-Frank Act. The legislation corrects that inadvertent omission so that the accounts are fully insured.

It is unclear if there is sufficient time left in the lame duck session of the 112th Congress to amend and pass the legislation in the Senate and send it back for House approval of the Chambliss-Corker Amendment.
According to the coalition, the amendment does no more than make the margin provisions of the Dodd-Frank Act consistent with the way they have been described by their sponsors. A letter written by Senators Dodd and Lincoln and a colloquy engaged in by Representatives Frank and Peterson stated that margin is not intended to be imposed on end-users. The amendment would begin to fulfill the promise made at the time of passage of the Dodd-Frank Act for legislation to address several issues known at the time, said the coalition, including this one.

The letter also noted that the amendment is consistent with Chairman Gensler’s recent statement on margin requirements. At a meeting of the Commodity Futures Trading Commission on December 1, 2010, Chairman Gensler said that the proposed rules on margin requirements should focus only on transactions between financial entities rather than those transactions that involve non-financial end-users. The Chambliss-Corker Amendment would achieve the focusing that Chairman Gensler supports, emphasized the coalition, by removing the authority of regulators to impose margin on trades with non-financial end-users. This is an extremely positive step, said the letter, and one that the business coalition hopes will lead to a margin exemption for all end-user trades.

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