Congressman Steve Stivers (R-OH) today announced that his inter-affiliate swaps legislation was re-introduced today in the U.S. House of Representatives. The legislation, which Stivers is cosponsoring with Congresswoman Marcia Fudge (D-OH), Congresswoman Gwen Moore (D-WI), and Congressman Chris Gibson (R-NY) would improve a section of Dodd-Frank by preventing internal, inter-affiliate swaps from being subject to costly and duplicative regulation.
"By clarifying these important distinctions within Dodd-Frank, we will promote job growth and ensure safety and soundness in financial regulation," Stivers said.
There was no distinction made in Dodd-Frank between external, or market-facing, swaps and internal swaps between two entities within the same corporate organization. Proposed derivatives rules in Dodd-Frank would require both market-facing and internal swaps to meet the same regulatory requirements, even though inter-affiliate swaps do not increase systemic risk.
Without providing a distinction, corporations using inter-affiliate swaps to centralize risk management will be charged up to three times more for the way in which they do business, as the affiliates will be forced to collateralize trades against themselves.
The Stivers legislation would exempt inter-affiliate swaps from margin, clearing, and execution requirements under Dodd-Frank. To ensure a targeted application, there are also important consumer protections in the bill, including:
Ensuring that companies who wish to use this exemption are truly affiliated.
Establishing reporting requirements for inter-affiliate swaps.
Giving regulators authority to ensure that this exemption cannot be used to circumvent other regulations within Dodd-Frank.
Maintaining the authority of state and federal regulators to ensure the safety and soundness of financial institutions.
Similar language from Stivers in the 112th Congress, H.R. 2779, passed the House by a vote of 357-36 in March 2012. The U.S. Senate did not take action on the proposal during the 112th Congress.
This legislation is supported by the Agriculture Retailers Association, the Commodity Markets Council, the National Association of Manufacturers, and the U.S. Chamber of Commerce.