WASHINGTON, March 14, 2013 /PRNewswire/ -- Marie Hollein, President and CEO of Financial Executives International (FEI), the association of choice for CFOs and other senior-level finance executives, will testify at a hearing before the U.S. House of Representatives Committee on Agriculture. Ms. Hollein will provide testimony on behalf of FEI and the Coalition for Derivatives End-Users in support of legislation to exempt derivatives end-users from burdensome regulatory requirements stemming from Title VII of the Dodd-Frank Act.
"Unfortunately, over two and a half years since the enactment of the Dodd-Frank Act, it appears that the intent of these end-user exceptions is not being upheld in the rulemaking process, as evidenced by the proposed margin rule and in the lack of clarity regarding companies that employ inter-affiliate swaps or use a centralized treasury hedging center," Ms. Hollein said today in prepared testimony. "Despite these outstanding issues, the compliance clock keeps ticking away and companies must be ready to meet key deadlines."
FEI is a member of the steering committee for the Coalition, which represents more than 300 end-user companies that use derivatives to hedge, not create, risk. Throughout the debate leading up to the Dodd-Frank Act, FEI joined the Coalition in advocating for effective and fair regulation of derivatives markets that brings transparency and mitigates systemic risk while not unduly burdening end-users, whose actions lower commercial risk and help stabilize markets. As a result, Congress provided for certain end-user exceptions in Title VII of the Dodd-Frank Act.
The Coalition has urged regulators to ensure that rules being written to implement the derivatives title of the Act do not impose unnecessary and costly requirements on end-users which would create more economic instability, restrict job growth, decrease productive investment, and hamper U.S. competitiveness in the global economy. Yet proposed rules dealing with inter-affiliate, or internal swaps in a corporate structure, do not provide the clarity necessary for end-users in their risk management practices.
For this reason, FEI joined the Coalition in sending letters to Congress in support of H.R. 677, the Inter-Affiliate Swap Clarification Act, which would first exempt inter-affiliate swaps from regulatory requirements intended to cover only transactions between external counterparties, and second to ensure that end-users are not penalized for using centralized treasury hedging centers to manage their commercial risk. The letter can be found here.
"Regulation of inter-affiliate swaps should square with the economic reality that inter-affiliate swaps do not pose systemic risk. H.R. 677 would make sure that end-users will not be forced to clear swaps simply because they use inter-affiliate trades or a centralized hedging structure," added Hollein.
In her testimony, Hollein also expressed support for H.R. 634 to exempt non-financial end-users from margin requirements, but her statement focused on H.R. 677, addressing two serious problems facing end-users:
- The CFTC's proposed requirement that end-users post variation margin when availing themselves of the inter-affiliate exemption from clearing brings added costs. The requirement would also regulate internal end-user trades the same as ones that create systemic risk.
- For end-users that execute swaps through an affiliate, the regulators' interpretation of the Dodd-Frank Act confronts non-financial end-users with a stark choice: either dismantle their central hedging centers and find a new way to manage risk, or clear all of their trades. This threatens to deny the clearing exception to those end-users who have chosen to hedge their risk in an efficient, highly-effective and risk-reducing way.
H.R. 634 and H.R. 677 mirror legislation that passed the House Committee on Agriculture and the U.S. House of Representatives in 2012 with strong bipartisan majorities (H.R. 2682 and 2779), but were not voted on in the Senate before the end of the 112th Congress. FEI continues to urge Congress to pass these important end-user bills into the 113th Congress.
The House Committee on Agriculture hearing will take place on Thursday, March 14, 2013 at 10:00 AM in Room 1300 of the Longworth House Office Bldg. The full testimony can be found on the Committee's website. For those outside of Washington, the hearing can be viewed through the Committee's website at http://agriculture.house.gov/hearing/examining-legislative-improvements-title-vii-dodd-frank-act. Click "audio/video" under the "Webcast" section on the top left of the page.
Financial Executives International is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers and controllers at companies from every major industry. Founded in 1931, FEI enhances member professional development through peer networking, career management services, conferences, teleconferences and publications. Members participate in the activities of 86 chapters, 74 in the U.S., 11 in Canada and 1 in Japan. FEI is headquartered in Morristown, NJ, with additional offices in Washington, D.C. and Toronto. Visit www.financialexecutives.org for more information.
SOURCE Financial Executives International