In a letter to SEC Chair Mary Schapiro and CFTC Chair Gary Gensler, the Chairs of the principal Congressional committees overseeing the implementation of the Dodd-Frank Act reiterated the critical importance of establishing a regulatory regime that will not create economic disincentives for end-users to access the derivatives markets. Specifically, regulators should exempt end-users from margin requirements and seek to limit other regulatory burdens that could have the unintended effect of driving up costs for end users and increasing systemic risk for the economy. The letter was signed by Senate Banking Committee Chair Tim Johnson (D-SD), Senate Agriculture Committee Chair Debbie Stabenow (D-MI), House Agriculture Committee Chair Frank Lucas (R-OK) and House Financial Services Committee Chair Spencer Bachus (R-AL).
Efficient access to derivatives enables companies to increase certainty in their businesses, noted the Chairs, and consumers benefit from companies’ prudent risk management activities through lower volatility in the prices of day-to-day goods and services, such as food, electricity and transportation. If end-user transactions are subject to margin requirements, costs for consumers could increase, and end-users may divert working capital from activities that promote economic growth and job creation.
It is also essential that the SEC and CFTC continue to coordinate with each other as they write rules to implement Title VII, especially on rules that will impact end-user costs. Interagency coordination consistent with the spirit and provisions of the Act is critical to create a streamlined regulatory framework that reduces unnecessary expenses, maximizes certainty for companies and minimizes regulatory arbitrage.
Similarly, as required by Dodd-Frank, the new derivatives rules must be closely coordinated with international efforts to regulate derivatives. The Chairs emphasized that foreign markets are closely watching how U.S. regulators are implementing Title VII, including the protections for end-user companies. As US businesses seek to compete around the globe, US markets must not be put at a competitive disadvantage.
The oversight Chairs expressed their continued support for the June 10, 2010 from former Senators Christopher Dodd and Blanche Lincoln. The Dodd-Lincoln letter emphasized that Congress clearly stated in the Dodd-Frank Act that margin and capital requirements are not to be imposed on end users, nor can the regulators require clearing for end user trades
More broadly, the four oversight Chairs noted that Title VII was designed to establish a robust new regulatory regime for derivatives, while maintaining highly-liquid and well-functioning markets that will fuel economic growth and job creation. The Chairs urged the SEC and CFTC to craft rules that carefully strike this important balance.