Bill Clarifies Derivatives End-User ExemptionBy
In November, the House of Representatives passed H.R. 1317, which provides clarifications for corporations with multiple subsidiaries that all use a centralized treasury unit (CTU) to make contracts with swap dealers. Given that the bill was passed by voice vote—which means it wasn’t a controversial issue—one would expect the Senate to also pass the bill.
H.R. 1317 addresses an issue with derivatives that was brought about by the Dodd-Frank Act. Section 723 of the Dodd-Frank Act provides an end-user (i.e., a nonfinancial company such as a manufacturer, airline, or agricultural company) a clearing exemption for those CTUs that act as an agent to the end-user affiliates. But it doesn’t offer the same clearing exemption when the CTU acts as the principal to the trades, which is by far the most common way in which CTUs are structured. H.R. 1317 clarifies that CTUs acting as principals are exempt, too.
“The current Dodd-Frank language, which also is referenced in regulatory proposals on margin, places corporate boards in the difficult position of approving decisions not to clear trades despite the exemption technically not applying,” the Coalition for Derivatives End-Users wrote to House members prior to the bill being passed on November 16, 2015.