[Congressional Record Volume 161, Number 168 (Monday, November 16, 2015)]
[House]
[Pages H8219-H8221]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
COMMODITY EXCHANGE ACT AND SECURITIES EXCHANGE ACT OF 1934 AMENDMENTS
Mr. HENSARLING. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 1317) to amend the Commodity Exchange Act and the Securities
Exchange Act of 1934 to specify how clearing requirements apply to
certain affiliate transactions, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 1317
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. TREATMENT OF AFFILIATE TRANSACTIONS.
(a) Commodity Exchange Act Amendments.--Section 2(h)(7)(D)
of the Commodity Exchange Act (7 U.S.C. 2(h)(7)(D)) is
amended--
(1) by redesignating clause (iii) as clause (v);
(2) by striking clauses (i) and (ii) and inserting the
following:
``(i) In general.--An affiliate of a person that qualifies
for an exception under subparagraph (A) (including affiliate
entities predominantly engaged in providing financing for the
purchase of the merchandise or manufactured goods of the
person) may qualify for the exception only if the affiliate--
``(I) enters into the swap to hedge or mitigate the
commercial risk of the person or other affiliate of the
person that is not a financial entity, and the commercial
risk that the affiliate is hedging or mitigating has been
transferred to the affiliate;
``(II) is directly and wholly-owned by another affiliate
qualified for the exception under this subparagraph or an
entity that is not a financial entity;
``(III) is not indirectly majority-owned by a financial
entity;
``(IV) is not ultimately owned by a parent company that is
a financial entity; and
``(V) does not provide any services, financial or
otherwise, to any affiliate that is a nonbank financial
company supervised by the Board of Governors (as defined
under section 102 of the Financial Stability Act of 2010).
``(ii) Limitation on qualifying affiliates.--The exception
in clause (i) shall not apply if the affiliate is--
``(I) a swap dealer;
``(II) a security-based swap dealer;
``(III) a major swap participant;
``(IV) a major security-based swap participant;
``(V) a commodity pool;
``(VI) a bank holding company;
``(VII) a private fund, as defined in section 202(a) of the
Investment Advisers Act of 1940 (15 U.S.C. 80-b-2(a));
``(VIII) an employee benefit plan or government plan, as
defined in paragraphs (3) and (32) of section 3 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1002);
``(IX) an insured depository institution;
[[Page H8220]]
``(X) a farm credit system institution;
``(XI) a credit union;
``(XII) a nonbank financial company supervised by the Board
of Governors (as defined under section 102 of the Financial
Stability Act of 2010); or
``(XIII) an entity engaged in the business of insurance and
subject to capital requirements established by an insurance
governmental authority of a State, a territory of the United
States, the District of Columbia, a country other than the
United States, or a political subdivision of a country other
than the United States that is engaged in the supervision of
insurance companies under insurance law.
``(iii) Limitation on affiliates' affiliates.--Unless the
Commission determines, by order, rule, or regulation, that it
is in the public interest, the exception in clause (i) shall
not apply with respect to an affiliate if the affiliate is
itself affiliated with--
``(I) a major security-based swap participant;
``(II) a security-based swap dealer;
``(III) a major swap participant; or
``(IV) a swap dealer.
``(iv) Conditions on transactions.--With respect to an
affiliate that qualifies for the exception in clause (i)--
``(I) the affiliate may not enter into any swap other than
for the purpose of hedging or mitigating commercial risk; and
``(II) neither the affiliate nor any person affiliated with
the affiliate that is not a financial entity may enter into a
swap with or on behalf of any affiliate that is a financial
entity or otherwise assume, net, combine, or consolidate the
risk of swaps entered into by any such financial entity,
except one that is an affiliate that qualifies for the
exception under clause (i).''; and
(3) by adding at the end the following:
``(vi) Risk management program.--Any swap entered into by
an affiliate that qualifies for the exception in clause (i)
shall be subject to a centralized risk management program of
the affiliate, which is reasonably designed both to monitor
and manage the risks associated with the swap and to identify
each of the affiliates on whose behalf a swap was entered
into.''.
(b) Securities Exchange Act of 1934 Amendment.--Section
3C(g)(4) of the Securities Exchange Act of 1934 (15 U.S.C.
78c-3(g)(4)) is amended--
(1) by redesignating subparagraph (C) as subparagraph (E);
(2) by striking subparagraphs (A) and (B) and inserting the
following:
``(A) In general.--An affiliate of a person that qualifies
for an exception under this subsection (including affiliate
entities predominantly engaged in providing financing for the
purchase of the merchandise or manufactured goods of the
person) may qualify for the exception only if the affiliate--
``(i) enters into the security-based swap to hedge or
mitigate the commercial risk of the person or other affiliate
of the person that is not a financial entity, and the
commercial risk that the affiliate is hedging or mitigating
has been transferred to the affiliate;
``(ii) is directly and wholly-owned by another affiliate
qualified for the exception under this paragraph or an entity
that is not a financial entity;
``(iii) is not indirectly majority-owned by a financial
entity;
``(iv) is not ultimately owned by a parent company that is
a financial entity; and
``(v) does not provide any services, financial or
otherwise, to any affiliate that is a nonbank financial
company supervised by the Board of Governors (as defined
under section 102 of the Financial Stability Act of 2010).
``(B) Limitation on qualifying affiliates.--The exception
in subparagraph (A) shall not apply if the affiliate is--
``(i) a swap dealer;
``(ii) a security-based swap dealer;
``(iii) a major swap participant;
``(iv) a major security-based swap participant;
``(v) a commodity pool;
``(vi) a bank holding company;
``(vii) a private fund, as defined in section 202(a) of the
Investment Advisers Act of 1940 (15 U.S.C. 80-b-2(a));
``(viii) an employee benefit plan or government plan, as
defined in paragraphs (3) and (32) of section 3 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1002);
``(ix) an insured depository institution;
``(x) a farm credit system institution;
``(xi) a credit union;
``(xii) a nonbank financial company supervised by the Board
of Governors (as defined under section 102 of the Financial
Stability Act of 2010); or
``(xiii) an entity engaged in the business of insurance and
subject to capital requirements established by an insurance
governmental authority of a State, a territory of the United
States, the District of Columbia, a country other than the
United States, or a political subdivision of a country other
than the United States that is engaged in the supervision of
insurance companies under insurance law.
``(C) Limitation on affiliates' affiliates.--Unless the
Commission determines, by order, rule, or regulation, that it
is in the public interest, the exception in subparagraph (A)
shall not apply with respect to an affiliate if such
affiliate is itself affiliated with--
``(i) a major security-based swap participant;
``(ii) a security-based swap dealer;
``(iii) a major swap participant; or
``(iv) a swap dealer.
``(D) Conditions on transactions.--With respect to an
affiliate that qualifies for the exception in subparagraph
(A)--
``(i) such affiliate may not enter into any security-based
swap other than for the purpose of hedging or mitigating
commercial risk; and
``(ii) neither such affiliate nor any person affiliated
with such affiliate that is not a financial entity may enter
into a security-based swap with or on behalf of any affiliate
that is a financial entity or otherwise assume, net, combine,
or consolidate the risk of security-based swaps entered into
by any such financial entity, except one that is an affiliate
that qualifies for the exception under subparagraph (A).'';
and
(3) by adding at the end the following:
``(F) Risk management program.--Any security-based swap
entered into by an affiliate that qualifies for the exception
in subparagraph (A) shall be subject to a centralized risk
management program of the affiliate, which is reasonably
designed both to monitor and manage the risks associated with
the security-based swap and to identify each of the
affiliates on whose behalf a security-based swap was entered
into.''.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Texas (Mr. Hensarling) and the gentlewoman from Wisconsin (Ms. Moore)
each will control 20 minutes.
The Chair recognizes the gentleman from Texas.
General Leave
Mr. HENSARLING. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days within which to revise and extend their
remarks and include extraneous materials on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. HENSARLING. Mr. Speaker, I yield myself such time as I may
consume.
Mr. Speaker, I rise in support of H.R. 1317. I would like to thank
the gentlewoman from Wisconsin (Ms. Moore) and the gentleman from Ohio
(Mr. Stivers), both very good members of the Financial Services
Committee, as well as Ms. Fudge and Mr. Gibson from the Agriculture
Committee, for their bipartisan work over, frankly, several years to
clarify an important provision of title VII of the Dodd-Frank Act.
H.R. 1317 is necessary to, once and for all, provide true relief for
businesses that neither caused nor contributed to the financial crisis.
The scope of Dodd-Frank's title VII, which governs the derivatives
markets, captured thousands upon thousands of unsuspecting businesses
who merely want to provide stable prices to their customers and ensure
that there are predictable costs to produce those products.
While we were able to address one of those negative impacts that
Dodd-Frank was having on end users earlier this year as part of the
TRIA Reauthorization, nonfinancial end users, regrettably, are still
subject to the onerous and costly requirements of title VII.
As long as a nonfinancial company uses a central treasury unit to
consolidate their derivatives positions, H.R. 1317 will exempt the
company's affiliates and subsidiaries from having to comply with title
VII's many requirements.
As many know, the House of Representatives last December unanimously
passed a substantially similar bill to provide this desperately needed
relief. Unfortunately, that bill met with the same fate so many other
bipartisan bills that have been produced by the Financial Services
Committee and the House: they passed on a good-faith, bipartisan basis
but, unfortunately, have been disregarded by the Senate.
Despite the significant differences between internal businesses or
inter-affiliate derivatives trade and derivatives between unrelated
counterparties, the Dodd-Frank Act treats all trades the same, which
needlessly increase the cost of hedging risk for end users such as
manufacturers, chemical companies, and utility companies, who, in turn,
would do what, Mr. Speaker?
Regrettably, pass those increased costs and market fluctuations on to
their customers.
In fact, Tom Quaadman, of the U.S. Chamber of Commerce's Center for
Capital Markets Competitiveness, noted during the legislative hearing
on H.R. 1317 that ``without this critical bipartisan language, end
users and consumers would face increased costs, and companies may be
forced to abandon proven and efficient methods for managing their
risk.''
H.R. 1317 is not for Wall Street; it is clearly for Main Street, and
I hope all my colleagues will join me in supporting this commonsense,
bipartisan legislation.
I reserve the balance of my time.
Ms. MOORE. Mr. Speaker, I yield myself such time as I may consume.
[[Page H8221]]
I do want to thank the chairman for his patience in getting this over
the line. Hopefully, the Senate will see it our way this time.
I also want to thank the ranking member, Ms. Waters, for her
diligence in working to get this legislation to the floor and, of
course, my friend from Ohio (Mr. Stivers), for working with me on this
bill. All of them have been tremendous partners.
A long, long, long, long time ago, Mr. Stivers shook my hand and said
that he would continue to work with me until we got this legislation
right, and he made good on his word.
I also want to thank my friends on the Agriculture Committee, the
gentlewoman from Ohio (Ms. Fudge) and the gentleman from New York (Mr.
Gibson). I credit all of these colleagues with helping this bill pass
the Financial Services Committee 57-0, and the Agriculture Committee by
voice vote.
We have a bill that sort of works for everyone: business, consumer
groups, and regulators.
These central treasury units, Mr. Speaker, are financial affiliates
of commercial companies. They are, indeed, the corporate best practices
because they permit efficient aggregation of the risk of a corporate
entity and provide for a single point of contact between the company
and financial counterparties.
This legislation appropriately treats central treasury units like
other inter-affiliate transactions in the aggregation and monitoring of
risk in businesses, which is exactly what the end user exemption in
Dodd-Frank always intended.
For example, if you are a company, you have many inputs and outputs
that require you to hedge, like wheat in beer-making or aluminum cans
in beer-making, and you need to make sure that you hedge and lock in
the price before production.
This bill permits the CTU to transact hedging transactions under the
Dodd-Frank end user exemption as principal and as an agent, which is
the logic that the CFTC agrees with. The legislation enshrines that
logic into statute with appropriate flexibility for the regulator and
companies.
So I urge all my colleagues to support H.R. 1317. We need to get this
legislation across the finish line to the President's desk because our
end users need this in order to conduct business.
Mr. Speaker, I yield back the balance of my time.
Mr. HENSARLING. Mr. Speaker, I yield as much time as he may consume
to the gentleman from Georgia (Mr. Austin Scott), an outstanding member
of the Agriculture committee.
Mr. AUSTIN SCOTT of Georgia. Mr. Speaker, I rise today in support of
H.R. 1317. This bill makes targeted reforms that narrowly expand end
user clearing relief to preserve the ability of end users to utilize
necessary risk management tools in line with congressional intent.
This House most recently passed similar language as part of the
Agriculture Committee's comprehensive reauthorization of the CFTC.
Today's suspension is another step forward in a bipartisan effort to
protect end users from the unintended regulatory consequences that have
begun to occur.
The derivatives market provides an efficient place for commercial end
users to manage and hedge the diverse risks associated with the day-to-
day operations of the businesses in this country. These essential risk-
management practices allow businesses like our agricultural producers
or utility companies to protect themselves against unfavorable market
fluctuations and to invest their resources to grow and create jobs.
As someone who has a degree in risk management, I can't stress enough
that effective policy in the derivative space must take into account
these efficient and proven business strategies. That is why Congress
clearly sought to exempt the end users from the law's costly and
burdensome clearing requirements in the drafting of the Dodd-Frank
legislation.
Unfortunately, despite these efforts, current law does not adequately
take into account the common risk-management practices of many
companies who utilize separate legal entities known as centralized
treasury units, or CTUs, to hedge the risk of their end user
affiliates.
CTUs are used by a variety of businesses to centralize the hedging
activities of multiple affiliates into a single market-facing entity.
While a CTU is appropriately classified as a ``financial entity,'' the
transaction it enters into to hedge the commercial market risk of the
end user affiliates should also be exempted from the clearing
requirement as if the end user affiliate had hedged those risks itself.
This allows firms to use CTUs to consolidate and reduce
enterprisewide risk, as well as to centralize hedging expertise. While
current law provides clearing exemptions for CTUs that act as an
``agent'' for affiliates, the exemption does not currently extend to
CTUs that practice as a ``principal'' to the trades which manage the
end user risks of commercial affiliates.
As most CTUS act as principals to the transactions hedging the risks
of end user affiliates, this glitch in the law effectively prohibits
commercial end users who utilize CTUs from accessing the end user
clearing exception.
{time} 2000
H.R. 1317 makes targeted but important statutory changes to clarify
that the law's essential end user clearing exception remains available
for all end users, regardless of their corporate structure.
As policymakers, it is our responsibility to ensure that regulation
does not pose an unnecessary detriment to legitimate business
practices. H.R. 1317 is an opportunity for us to resolve one of those
issues today. This bill provides needed reforms to ensure our
regulatory framework protects the integrity of our markets while
allowing end user access to the tools needed to conduct their
businesses.
A large bipartisan group of Members from all points of the
ideological spectrum have worked diligently to produce this legislation
which passed unanimously out of both the House Financial Services and
the Agriculture Committees.
Mr. Speaker, I would like to close by thanking each of them, and
specifically Representatives Moore, Stivers, Fudge, and Gibson, for
their hard work. I urge my colleagues to join me in supporting H.R.
1317.
Mr. HENSARLING. Mr. Speaker, I have no further speakers, but I just
wish to urge all of my colleagues to support, again, a very bipartisan
and very commonsense bill. This relief is needed for end users for
proper risk management. It will indeed help these companies with
economic growth.
Again, Mr. Speaker, I urge all of my colleagues to support the
legislation.
Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Texas (Mr. Hensarling) that the House suspend the rules
and pass the bill, H.R. 1317, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________