WASHINGTON, May 7, 2013- Senators Mike Johanns, R-Neb., and Jon Tester, D-Mont., are leading a group of Senators in introducing a bill to clarify an exemption for farmers, ranchers, manufacturers and small businesses from margin requirements included in the Dodd-Frank financial legislation.
These groups, or end-users, use derivatives to manage risk and insure against extreme price fluctuations for commodities and inputs. Farmers use derivatives to lock in the prices of their crops for the coming season.
“Farmers, ranchers and businesses use every tool available to responsibly protect themselves and their customers from unforeseen risks like drought or fluctuations in fuel, fertilizer or commodity prices,” Johanns said. “Our bipartisan legislation allows these local businesses to continue doing that without battling burdensome and costly margin requirements meant to cover day-traders playing the markets.”
Joining Johanns and Tester to introduce the bill are Senators Roy Blunt, R-Mo., Mike Crapo, R-Idaho, Joe Donnelly, D-Ind., Kay Hagan, D-N.C., Heidi Heitkamp, D-N.D., Amy Klobuchar, D-Minn., Jerry Moran, R-Kan., Richard Shelby, R-Ala., Pat Toomey, R-Pa., and Mark Warner, D-Va.
“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,” Tester said.
The senators’ bill mirrors H.R. 634, which passed the House Financial Services Committee after it advanced out of the House Agriculture Committee on a voice vote in March and exempts end-users from the margin and capital requirements of Title VII of the Dodd-Frank Act.
According to the announcement from Tester’s office, Dodd-Frank included margin requirements forcing non-end-users and those speculating on market prices to post margin to cover the risks associated with their derivative purchases. Dodd-Frank included an exemption for non-financial end-users based on the low risks they pose to the financial system.
The Commodity Futures Trading Commission and Securities and Exchange Commission issued a joint rule that would exempt end-users from margin requirements, noted Tester’s office, but the Federal Reserve has issued regulations that might include end-users in the regulations.
“Even a cursory review of the legislative history surrounding the Dodd-Frank Wall Street Reform Act demonstrates that the authors always intended end-users to be exempt from these requirements and this bill ensures that this intention is clearly written into statute,” said Dorothy Coleman, vice president of tax and domestic policy at the National Association of Manufacturers.
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