The NAM November 24 joined the Coalition for Derivatives End-Users in submitting comments to the Federal Reserve and Prudential banking regulators thanking them for taking a positive step forward in their new proposed margin rule. The letter also calls attention to issues that still need to be resolved, including how end-users with centralized treasury units (CTUs) will be treated.
The reproposed “Margin Requirements for Non-cleared Swaps” released in September acknowledges what manufacturers have been saying for years – margin requirements should be decided between a non-financial end-user and their bank counterparty and not imposed by a third party regulator. Unfortunately the 2011 proposal required margin to be imposed even on those transactions involving end-users and the NAM and Coalition for Derivatives End-Users have been urging regulators to recognize that Congress did not intend to subject end-users to mandatory margin requirements.
Clearly the latest proposal is a major improvement over the previous margin rule yet there are still areas of the rulemaking where manufacturers need clarity. One of the most important is the need for clarification that manufacturers employing a CTU to hedge risk are still able to claim the end-user exception from clearing requirements granted under Dodd-Frank.
As regulators work to finalize the rules implementing the Dodd-Frank Act, it is essential that regulations are not overly burdensome to manufacturers. After all, end-users did not contribute to the financial crisis. Moreover, end-users make up less than 10 percent of the derivatives marketplace, but create over 90 percent of the jobs. Subjecting end-users to unnecessary derivatives requirements would be harmful to job creation and economic growth.
The NAM will continue to push for more permanent solutions to these issues by asking lawmakers to provide manufacturers with the certainty that they will not have to face margin or clearing requirements in the future. Congress can help end-users by supporting legislation to provide a clear margin exemption (S. 888/H.R. 634) and much-needed CTU clarification (H.R. 5471).