The House of Representatives has passed by an overwhelming
bipartisan vote of 411-12 H.R. 634, the
Business Risk Mitigation and Price Stabilization Act, which codifies an
exemption for non-financial end users that use derivatives in their commercial
businesses from the margin requirements of the Dodd-Frank Act. The House also
passed, by a strong bipartisan vote of 420-2, the Swap Data Repository and
Clearinghouse Indemnification Act, H.R. 742, which
would ensure that U.S. and foreign regulators can share necessary swaps data to
increase market transparency and facilitate global regulatory cooperation.
The Dodd-Frank Act requires swap data
repositories and clearing organizations to make data available to foreign
regulators. But, under Dodd-Frank, this data-sharing can happen only if foreign
regulators agree to indemnify the U.S. entity and U.S. regulators for any
corresponding litigation expenses that might arise. Foreign regulators have been
unwilling or unable to agree to such indemnification agreements under their own
legal structures. Agriculture Committee Chair Frank Lucas (R-Okla) has noted
that some jurisdictions don’t have the concept of indemnification, so the
indemnification provisions prevent the necessary data-sharing. To ensure that
U.S. and foreign regulators have access to derivatives data, H.R. 742 would
eliminate the indemnification provisions that would otherwise impede the
necessary data-sharing arrangements.
Last year, the SEC recommended that Congress consider removing the indemnification requirement added by the Dodd-Frank Act. The indemnification requirement interferes with access to essential information, said Ethiopis Tafara, then Director of the SEC Office of International Affairs, including information about the cross-border OTC derivatives markets. In removing the indemnification requirement, Congress would assist the SEC, as well as other U.S. regulators, in securing the access it needs to data held in global trade repositories.
H.R. 634 ensures that end users can
continue to use derivatives to hedge business risk, such as the cost of fuel.
There is a broad consensus that Congress never intended for nonfinancial
end-users to be required to post margin under Dodd-Frank. Legislative history
indicates that Dodd-Frank intended to exempt end-users from margin requirements.
However, there is regulatory uncertainty around the issue because, while the SEC
and the CFTC would exempt end-users from margin, the Federal Reserve has issued
regulations that would capture many end-users.
House Ag Committee Ranking Member Collin Peterson (D-Minn) said that
the legislation was needed because the banking regulators, unlike the SEC and
CFTC, ignored the will of Congress and required end-users to post margin. Rep.
Mike McIntyre (D-NC) said that true end-users use derivatives to protect from
losses and ensure stability and not to engage in speculation, adding that H.R.
634 will not apply to the major financial institutions. This is a critical bill,
he emphasized, to ensure that the intent of Congress is not ignored