Eight energy trade associations Wednesday forwarded a letter to House lawmakers expressing their support for two bills that would shield commercial end-users from some of the more restrictive requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The groups back H.R. 3527, a measure pending before the House Agriculture Committee that would ensure that commercial end-users are not miscast as swap dealers under Title VII of Dodd-Frank; and H.R. 2682, which would bar regulators from imposing margin requirements on nonfinancial end-users under the derivatives title. The latter bill was voted out of the House Financial Service Committee in late November (see Daily GPI, Dec. 1).
“We are concerned that the swap dealer definition and de minimis exception under the Commodity Futures Trading Commission’s (CFTC) proposed ‘entity definition’ rules are overly restrictive and would result in commercial end-users, who use swaps for hedging purposes, being misclassified as swap dealers, as well as imposing other unnecessary burdens and costs on end-users,” the associations said.
CFTC Chairman Gary Gensler indicated earlier this week that the Commission may take up the final “entity” rule later this month, which would lay out the definitions for swap dealers and major swap participants.
The eight groups believe H.R. 2682 is necessary because the “rules proposed by various financial regulators (including the CFTC and the prudential or banking regulators) on margin requirements are inconsistent, work at cross-purposes with congressional intent and have caused much uncertainty for commercial end-users.”
For example, “although the CFTC has proposed not to require margin to be posted for end-users’ uncleared swaps, the prudential regulators have taken the opposing view that end-users transacting with banks must provide one-way margining for any uncleared swap transaction exceeding a threshold set by the bank. In addition, the CFTC proposes to unnecessarily impose capital requirements for transactions with end-users where margin is not posted.”
CME Group’s Michael Prokop, managing director for energy products, is taking a wait-and-see attitude toward Dodd-Frank. Nevertheless, whatever Congress finally comes up with won’t be a show-stopper, he said.
“The market won’t stop trading, and the market will continue to trade and it will grow,” Prokop told reporters in Houston Thursday. “I think with the strength of the underlying market, we’ll deal with these rules as they come down. I’ve said…one of the most challenging things in this marketplace right now is not knowing what the final Dodd-Frank rules are going to be. I think that’s added to some of the lack of volatility in natural gas.”
When the final rule does come down, the industry “will figure out how to deal with these rules,” he said. Changes could be made in the way exchanges interface with the marketplace, he said. Product delivery could change, perhaps with electronic enhancements. “Perhaps we have to have more physically settled futures, perhaps more financially settled futures,” he said. “When we know what we’re up against, we’ll be able to deal with it.”
Signatories to the House letter were the American Gas Association, Natural Gas Supply Association, Independent Petroleum Association of America, American Public Power Association, Edison Electric Institute, Electric Power Supply Association, Large Public Power Council and the National Rural Electric Cooperative Association.
The legislation, the groups said, “will help ensure that Dodd-Frank is implemented appropriately, will assure a robust commercial end-user exemption as intended by the Congress and will not create loopholes in the regulations.”
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