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Congress likely to clarify Dodd-Frank "end-user" derivatives exemption.

Though there appears to be very limited Democratic support for expanding the SOX Section 404(b) exemption beyond the JOBS Act provision, there is support in Congress from both parties to relieve nonfinancial companies from some of the derivative requirements of the Dodd-Frank Act. Action turns to the Senate this fall on a bill clipping the wings of the Obama Administration on its rulemaking that defined when nonfinancial companies have to post "margin" when entering into derivative trading arrangements with counterparties, usually big banks. Dodd-Frank said that nonfinancial companies who use derivatives to hedge commercial risk don't have to "clear" the derivative trade through a swap data repository (SDR). In addition, Dodd-Frank says a company that qualifies for the exemption doesn't have to post margin with the bank selling the derivative.

In the eyes of the business community, however, the proposed rule issued by the Commodity Futures Trading Commission (CFTC) doesn't offer a wide enough exemption. That has led to the introduction in the Senate of the Business Risk Mitigation and Price Stabilization Act, which passed the House by a vote of 370-24. Democrats and Republicans in the Senate are cosponsoring the bill.

Yet neither the House nor the Senate bill exempts financial end-users, as the Coalition for Derivatives End-Users, the business lobbying coalition, has pressed for. That would include pension funds and commercial businesses with financial affiliates that use derivatives primarily to hedge business risks and whose derivatives use doesn't jeopardize financial stability.
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Title Annotation:GOVERNMENT
Publication:Strategic Finance
Article Type:Brief article
Geographic Code:1USA
Date:Oct 1, 2012
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