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Lawmakers Call for End-User Exemption from Margin Requirements

The heads of the Senate and House committees overseeing the implementation of the sweeping Dodd-Frank Wall Street Reform Act Thursday urged federal regulators to provide an exemption from margin requirements for end-user transactions in the derivatives markets.

Four committee chairmen made the plea in a bipartisan letter forwarded to Treasury Secretary Timothy Geithner; Federal Reserve Chairman Ben Bernanke; Gary Gensler, the chairman of the Commodity Futures Trading Commission; and Mary Schapiro, chair of the Securities and Exchange Commission.

"While we have been encouraged by many of your comments regarding capital and margin requirements, we write to reiterate the critical importance of establishing a regulatory regime that will not create economic disincentives for end-users to access the derivatives markets," wrote the committee leaders, who included Senate Agriculture Committee Chairman Debbie Stabenow (D-MI); Sen. Tim Johnson (D-SD), chairman of the Senate Banking Committee; House Agriculture Committee Chairman Frank Lucas (R-OK); and Rep. Spencer Bachus (R-AL), chairman of the House Financial Services Committee.

In addition to exempting end-users from margin requirements, the lawmakers urged the regulators to "limit regulatory burdens that could have the unintended effect of driving up costs for end-users and increasing systemic risk for our economy."

The committees chairmen stressed that it was "essential that you continue to coordinate with each other as you write rules to implement Title VII [of Dodd-Frank], especially on rules that will impact end-user costs. Interagency coordination...is critical to create a streamlined regulatory framework that reduces unnecessary expenses, maximizes certainty for companies and minimizes regulatory arbitrage."

Title VII establishes a framework for regulatory and supervisory oversight of the over-the-counter market, which is estimated at more than $300 trillion in the United States.

Moreover, "our new derivatives rules must be closely coordinated with international efforts to regulate derivatives. Undoubtedly, foreign markets are closely watching how U.S. regulators are implementing Title VII, including the protections for end-user companies," the lawmakers said.

"An exemption for end-users means more cash working for the economy. Right now, we need to do everything we can to ensure the economy is growing and creating jobs for Americans across the country," Lucas said.

More than 38 million Americans work at companies that use derivatives to legitimately manage their business risks, according to Stabenow. "While new protections are necessary to prevent future government bailouts and economic meltdowns, we must see to it that businesses using derivatives to manage risk aren't being burdened with overreaching and unnecessary regulations," she said.

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