Senators Mike Johanns (R-NE) and Jon Tester (D-MT.) are leading a bipartisan coalition of Senators in introducing a bill to codify the Dodd-Frank Act derivatives end-user exemption for non-financial commercial companies that use derivatives to manage their risk and insure against extreme price fluctuations for commodities critical to their business operations. Senator Mark Warner (D-VA), a key member of the Banking Committee, is co-sponsoring the bill, along with the Committee’s Ranking Member Senator Larry Crapo (R-ID). S. 888 is companion bill to H.R. 634, which was favorably reported out of the House Financial Services Committee by a 59-0 vote and is almost certainly headed for passage by the full House.
The Senate bill is identical to H.R. 634, and clarifies current law by making explicit that commercial end-users are not subject to costly margin requirements, consistent with Congress’ intent in Dodd-Frank. End-users are the final user of a good or product. Dodd-Frank legislative history indicates an exemption for non-financial end-users based on the low risks they pose to the financial system. Despite Congress’ intent, there has been a debate over how broadly the exemption would apply. While the CFTC and SEC previously issued a joint rule that would exempt end-users from margin, the Federal Reserve has issued regulations that would capture many end-users in their regulations.