U.S. Sens. Mike Johanns (R-Neb.), Mike Crapo (R-Idaho), Herb Kohl (D-Wis.), Jon Tester (D-Mont.), Pat Toomey (R-Pa.) and Kay Hagan (D-N.C.) today introduced a bill to exempt farmers, ranchers, manufacturers and small businesses from the margin requirements in the Dodd-Frank financial legislation. These exempted groups, known as end-users, use derivatives to insure against extreme price fluctuations for commodities integral to their business operations.
The bill introduced by the senators is identical to H.R. 2682, which passed the U.S. House of Representatives by a vote of 370 to 24, and an amendment Crapo and Johanns introduced to the farm bill, but not included in the final package. It clarifies current law by making explicit that commercial end-users are not subject to costly margin requirements imposed by financial regulators.
Johanns said, "Farmers, ranchers and businesses are responsibly protecting themselves, their families and their customers against risks like drought, wildfires or fluctuations in fuel prices -- not participating in the type of day-trading this regulation was meant to target. Our bipartisan legislation makes that clear and protects these businesses from burdensome regulations."
Crapo said, "The Senate needs to quickly pass this bi-partisan legislation to affirm Congressional intent by providing an explicit exemption from margin requirements for non-financial end-users that qualify for the clearing exemption. Not only does the economy benefit from this type of hedging activity, but the Federal Reserve is comfortable making this exemption explicit and it overwhelmingly passed in the U.S. House of Representatives."
Kohl said, "This legislation makes certain that American manufacturers are not burdened by legislation that was intended to regulate Wall Street. A clear exemption for end-users will allow businesses to lock in prices for supplies they need to operate their businesses without having to tie up their available capital."
Tester said, "This bill ensures that Montana farmers and ranchers can continue to effectively manage risks, protect their livelihoods, and provide for their families. Smart risk management strengthens our economy, and this bill clarifies Congress' intent to give small businesses the flexibility and certainty they need to successfully run their businesses."
Toomey said, "There is wide bipartisan agreement that subjecting manufacturing companies to end-user regulations will hurt job creation by diverting capital they would otherwise use to invest and hire new employees. This bill will protect our manufacturing companies from unnecessary regulations, and I hope we can build on the bipartisan momentum to pass this important legislation."
Hagan said, "This bipartisan legislation will ensure that we are not imposing unnecessary costs on main street businesses that use derivatives to manage price fluctuations in commodities that they use to run their business and build their products."
End-users are the final user of a good or product. Ranchers, for example, could purchase derivatives contracts on corn or hay in advance of the harvest to protect themselves against unforeseen market fluctuations. Dodd-Frank included margin requirements forcing non end-users and those speculating on market prices to cover the associated risks with their derivative purchases.
Dodd-Frank included an exemption for end-users based on the low risks they pose to the financial system. Since implemented, there has been a debate over how broadly this exemption would apply. The Commodity Futures Trading Commission and Securities and Exchange Commission issued a joint rule last year that would capture many end-users in these new regulations.