Derivatives End-Users Clarification Act

Mr. President, today Senator Klobuchar and I are introducing legislation to clarify that commercial companies that execute swaps to manage their business risk through ``centralized treasury units'' are entitled to the end-user clearing exemption provided by Congress as part of the Dodd-Frank Act.

The Dodd-Frank Act requires financial entities to clear and trade their derivatives contracts on regulated exchanges. The point of this reform is to cut down on the systemic risk posed by financial speculators who invest in volatile derivatives contracts. It was not intended to restrict the ability of non-financial ``end-users'' to hedge commercial risks that are part of their normal business operations. For that reason, the Dodd-Frank Act provided end-users with an exemption from the act's clearing requirements.

Many non-financial end-users use subsidiaries called ``centralized treasury units'' to manage their derivatives contracts. These centralized treasury units allow corporations to consolidate their hedging expertise in one subsidiary. Unfortunately, because these subsidiaries are not technically ``end-users'' themselves, the end-user exemption provided by Dodd-Frank does not

apply to them, even though they execute derivatives for other end-users within the corporate family, and are considered a best-practice among corporate treasurers.

Our legislation fixes the end-user exemption to clarify that it applies to swaps between a centralized treasury unit and an external counterparty, so long as the swap hedges the risks of a commercial affiliate. The language of our bill is substantially the same as that of H.R. 5471, offered by Representatives Moore, Stivers, Gibson, and Fudge, that passed the House by voice vote yesterday.

I urge my colleagues to support the common sense clarification proposed in this bipartisan legislation.

Mr. President, today Senator Klobuchar and I are introducing legislation to clarify that commercial companies that execute swaps to manage their business risk through ``centralized treasury units'' are entitled to the end-user clearing exemption provided by Congress as part of the Dodd-Frank Act.

The Dodd-Frank Act requires financial entities to clear and trade their derivatives contracts on regulated exchanges. The point of this reform is to cut down on the systemic risk posed by financial speculators who invest in volatile derivatives contracts. It was not intended to restrict the ability of non-financial ``end-users'' to hedge commercial risks that are part of their normal business operations. For that reason, the Dodd-Frank Act provided end-users with an exemption from the act's clearing requirements.

Many non-financial end-users use subsidiaries called ``centralized treasury units'' to manage their derivatives contracts. These centralized treasury units allow corporations to consolidate their hedging expertise in one subsidiary. Unfortunately, because these subsidiaries are not technically ``end-users'' themselves, the end-user exemption provided by Dodd-Frank does not

apply to them, even though they execute derivatives for other end-users within the corporate family, and are considered a best-practice among corporate treasurers.

Our legislation fixes the end-user exemption to clarify that it applies to swaps between a centralized treasury unit and an external counterparty, so long as the swap hedges the risks of a commercial affiliate. The language of our bill is substantially the same as that of H.R. 5471, offered by Representatives Moore, Stivers, Gibson, and Fudge, that passed the House by voice vote yesterday.

I urge my colleagues to support the common sense clarification proposed in this bipartisan legislation.