A bill has been introduced in the Senate to exempt farmers, ranchers, manufacturers and small businesses from the margin requirements in the Dodd-Frank financial legislation. The measure is identical to legislation passed by the U.S. House by a vote of 370 to 24 – as well as an amendment to the Senate farm bill introduced by Idaho’s Mike Crapo and Nebraska’s Mike Johanns. It clarifies current law my making explicit that commercial end-users – who use derivatives to insure against extreme price fluctuations for commodities integral to their business operations – are not subject to costly margin requirements imposed by financial regulators.
Senator Johanns says farmers, ranchers and businesses are responsibly protecting themselves, their families and their customers against risks like drought, wildfires or fluctuations in fuel prices – not participating in the type of day-trading the Dodd-Frank legislation was meant to target. Senator Crapo says the Senate needs to quickly pass the bipartisan legislation to affirm Congressional intent by providing an explicit exemption from margin requirements for non-financial end-users that qualify for the clearing exemption.
Johanns and Crapo were joined by Wisconsin’s Herb Kohl, Montana’s Jon Tester, Pennsylvania’s Pat Toomey and North Carolina’s Kay Hagan in introducing the legislation. A joint press release notes Dodd-Frank did include an exemption for end-users based on the low risks they pose to the financial system. However – since implemented – there has been a debate over how broadly this exemption would apply. The release goes on to point out the Commodity Futures Trading Commission and Securities and Exchange Commission issued a joint rule last year that would capture many end-users in these new regulations.