Manufacturers Win Exemption in Frank’s Derivatives Overhaul

By Dawn Kopecki and Asjylyn Loder 

Companies such as Caterpillar Inc., Duke Energy Corp. and Apple Inc. won an exemption in proposed derivatives legislation from posting extra cash for hedging transactions. House Financial Services Committee Chairman Barney Frank released a 187-page draft bill on Oct. 2 aimed at tightening oversight of the $592 trillion derivatives market. The measure, drawn from the Obama administration’s proposals, would require the most common and actively traded over-the-counter derivatives contracts to be bought and sold on exchanges or processed through a regulated trading platform. The National Association of Manufacturers, U.S. Chamber of Commerce and the Business Roundtable, three of the biggest trade associations in Washington, lobbied Congress and the administration to exempt derivatives “end-users” from new rules and collateral requirements. End-users employ derivatives to hedge a risk to their operations, such as swings in interest rates, foreign currency shifts or changes in commodities prices. The draft would expand the administration’s exemption of end-users from collateral and clearing requirements. The administration proposal, released Aug. 11, would give a dispensation only to companies that use so-called hedge accounting. Frank’s proposal would exempt all end-user transactions and would let companies post non-cash items as collateral to satisfy margin requirements, Coleman said. “He’s done a lot for the non-bank end-users, which was his most formidable obstacle from the farm belt and manufacturing sector,” said Karen Petrou, managing partner of Washington- based research firm Federal Financial Analytics Inc., in an interview today.

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