Today, Rep. Michael G. Grimm's (R-NY) Business Risk Mitigation and Price Stabilization Act, H.R. 634, cleared a major hurdle with passage in the House Financial Services Committee 59-0, without amendment. It will now move to the House floor for a vote. This bipartisan bill clarifies that true derivatives end-users are exempt from the margin requirements applied by the Dodd-Frank Wall Street Reform and Consumer Protection Act to many derivatives contracts. This exemption will allow end-users to continue to use derivatives to maintain low and stable prices for consumers and will free up capital that can be used to create jobs and keep American companies competitive.
"This bill is about creating jobs and removing obstacles to business growth that have been imposed by over-reaching and burdensome regulations," said Rep. Grimm. "By removing the unnecessary margin posting requirements, we can help our businesses free up capital that can be used to hire new employees, keep prices low for American consumers, and help our companies remain competitive in the global economy. Last Congress, this legislation passed the House with overwhelming support, and I am pleased that it is again moving quickly, so that the Senate may act without delay."
True end-users are companies that use derivatives to manage an actual business risk - generally to hedge against fluctuating prices, currency rates, or interest rates - and not to speculate. This bill clarifies Congressional intent of Dodd-Frank by exempting end-users that use derivatives to hedge legitimate business risk from posting margin.
Forcing true end-users to post margin can have several negative consequences: 1) the costs of hedging could be become so high that they stop hedging, resulting in a detrimental rise in prices for consumers; 2) capital will be restricted that would otherwise be used for job creation or reinvestment to make American companies more competitive in the global economy; and 3) high costs of hedging could drive business overseas to foreign derivatives markets. H.R. 634 eliminates the margin requirement and thus helps prevent these negative consequences from occurring.
Rep. Grimm introduced the bill with Reps. Gary Peters (D-MI), Austin Scott (R-GA), and Mike McIntyre (D-NC). Reps. Grimm and Peters serve on the House Financial Services Committee, and Reps. Scott and McIntyre serve on the House Agriculture Committee. Both committees have jurisdiction over this legislation.
This legislation passed the House last Congress on March 26, 2012 with a vote of 370-24. It cleared the Agriculture Committee on March 20, 2013, and the Financial Services Committee today.