[Congressional Record (Bound Edition), Volume 160 (2014), Part 12]
[House]
[Pages 16357-16361]
[From the U.S. Government Publishing Office, www.gpo.gov]




     COMMODITY EXCHANGE ACT AND SECURITIES EXCHANGE ACT AMENDMENTS

  Mr. LUETKEMEYER. Mr. Speaker, I move to suspend the rules and pass 
the bill (H.R. 5471) 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.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 5471

       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) In General.--
       (1) Commodity exchange act amendment.--Section 
     2(h)(7)(D)(i) of the Commodity Exchange Act (7 U.S.C. 
     2(h)(7)(D)(i)) is amended to read as follows:
       ``(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 
     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, provided that if the hedge or mitigation of 
     such commercial risk is addressed by entering into a swap 
     with a swap dealer or major swap participant, an appropriate 
     credit support measure or other mechanism must be 
     utilized.''.
       (2) Securities exchange act of 1934 amendment.--Section 
     3C(g)(4)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78c-3(g)(4)(A)) is amended to read as follows:
       ``(A) In general.--An affiliate of a person that qualifies 
     for an exception under paragraph (1) (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 
     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, provided that if the 
     hedge or mitigation such commercial risk is addressed by 
     entering into a security-based swap with a security-based 
     swap dealer or major security-based swap participant, an 
     appropriate credit support measure or other mechanism must be 
     utilized.''.
       (b) Applicability of Credit Support Measure Requirement.--
     The requirements in section 2(h)(7)(D)(i) of the Commodity 
     Exchange Act and section 3C(g)(4)(A) of the Securities 
     Exchange Act of 1934, as amended by subsection (a), requiring 
     that a credit support measure or other mechanism be utilized 
     if the transfer of commercial risk referred to in such 
     sections is addressed by entering into a swap with a swap 
     dealer or major swap participant or a security-based swap 
     with a security-based swap dealer or major security-based 
     swap participant, as appropriate, shall not apply with 
     respect to swaps or security-based swaps, as appropriate, 
     entered into before the date of the enactment of this Act.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Missouri (Mr. Luetkemeyer) and the gentlewoman from Wisconsin (Ms. 
Moore) each will control 20 minutes.
  The Chair recognizes the gentleman from Missouri.


                             General Leave

  Mr. LUETKEMEYER. Mr. Speaker, I ask unanimous consent that all 
Members have 5 legislative days within which to revise and extend their 
remarks and submit extraneous materials for the Record on H.R. 5471, 
currently under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Missouri?
  There was no objection.
  Mr. LUETKEMEYER. Mr. Speaker, I yield myself such time as I may 
consume.
  Hundreds of American businesses, large and small--from manufacturers, 
to utilities, to agricultural businesses, to airlines--use derivatives 
every day to manage their business risks and to reduce their exposure 
to price fluctuations.
  Without derivatives, businesses and their customers would face 
increased prices for the goods and services these businesses provide. 
The derivatives these businesses use are not risky. They played no role 
in the financial crisis. Nevertheless, they were targeted in the Dodd-
Frank Act, which increased their price and decreased their 
availability.
  Since the beginning of the 112th Congress in 2011, the Financial 
Services Committee and the Agriculture Committee have worked together 
to clarify that title VII of the Dodd-Frank Act should not burden Main 
Street businesses with a costly compliance regime that would stifle 
growth and job creation.
  These efforts have produced bipartisan bills, including many 
sponsored by Democrats, that have passed the House with large 
majorities. The bill under consideration is yet another.
  H.R. 5471 is sponsored by my Democratic colleague on the Financial 
Services Committee, Representative Gwen Moore, and is cosponsored by 
another colleague, Representative Steve Stivers. The bill amends the 
Securities Exchange Act of 1934 and the Commodity Exchange Act, and it 
extends the Dodd-Frank Act, title VII, clearing exemption to 
nonfinancial entities that use a central treasury unit to reduce risk 
and net the hedging needs of affiliated businesses.
  Mr. Speaker, that may sound technical, but the bill is a commonsense 
measure to give regulatory certainty to Main Street businesses in 
Missouri and beyond. I encourage my colleagues to support H.R. 5471.
  I reserve the balance of my time.
  Ms. MOORE. Mr. Speaker, I yield myself such time as I may consume.
  I join my colleague, the gentleman from Missouri, in urging my 
colleagues to support H.R. 5471; however, before I get into why we 
should support the bill, I need to thank all of my partners in this 
effort.
  As has been mentioned, Mr. Stivers has been fantastic throughout this 
entire process. I knew going into this that I had a great Republican 
partner. I can't say enough about Representative Stivers, but time will 
not allow me to do it.
  I had another great bipartisan partner in Representative Gibson on 
the Agriculture Committee. Of course, it is always a joy to work with a 
good friend and colleague on the Ag Committee, Representative Marcia 
Fudge.
  Mr. Speaker, H.R. 5471 is a true ``end users'' bill. The bill is 
targeted as it applies to centralized treasury centers, or CTUs, of 
nonfinancial end user companies.
  The CTU model enables an end user corporation to efficiently 
centralize hedging risks for the entire consolidated corporate group, 
and it is, in fact, a corporate best practice. It permits companies to 
more efficiently hedge commercial business risk, which was always the 
intent of Dodd-Frank.
  The CFTC agrees with the underlying policy of the bill as they have 
provided no-action relief on this point; however, H.R. 5471 is still 
needed because, as a practical matter, no-action relief is no 
substitute for statutory fixes as it creates legal uncertainty when 
deciding how to organize your global business structure.
  Corporate boards may be hesitant to approve a decision, as they are 
required to do, that violates the law based only on an assurance that 
CFTC staff will not recommend enforcement. H.R. 5471 fixes the quirky 
result of treating companies that use a CTU model differently than 
companies that do not accomplish the same result.
  The bill also solves another far more technical issue with the no-
action relief that relates to CTUs issuing swaps as a principal, as 
opposed to as an agent.
  There is simply no good reason to not address these issues. In fact, 
CTUs are considered a corporate best practice. I can offer you, Mr. 
Speaker, an example of one company in my district, MillerCoors. They 
summarized it best in written testimony before the House Financial 
Services Committee:

       Though it may be tempting to view all derivatives as risky 
     financial products that were central to the credit crisis, we 
     must remember that these are important tools upon which 
     thousands of companies depend to manage risks in the real 
     economy.

  Just remember that we all have companies in our districts that use 
swaps legitimately to mitigate risk. I urge all of my colleagues to 
support this important legislation.
  Mr. Speaker, I reserve the balance of my time.
  Mr. LUETKEMEYER. Mr. Speaker, I yield 3 minutes to the gentleman from 
Oklahoma (Mr. Lucas), the distinguished chairman of the Agriculture 
Committee.

[[Page 16358]]


  Mr. LUCAS. Mr. Speaker, I would like to thank the gentleman from 
Missouri for yielding.
  I would like to thank my colleagues from the House Agriculture 
Committee, Mr. Gibson and Ms. Fudge, for their continued leadership on 
this issue; also, I would like to thank Ms. Moore and Mr. Stivers for 
working with my committee to introduce this compromise language as a 
stand-alone bill for the House's consideration.
  Almost identical language was included in the Agriculture Committee's 
CFTC reauthorization bill, H.R. 4413. I am proud to say that we moved 
that legislation through the Ag Committee by a voice vote and then 
passed it here on the House floor with overwhelming bipartisan support 
this summer. I am hopeful that this bill can receive the same strong 
bipartisan support.
  H.R. 5471 will provide American businesses the certainty they need to 
continue managing their risk in the most efficient manner possible. 
Today, businesses all over America rely on the ability to centralize 
their hedging activities to reduce their counterparty credit risk, to 
lower costs, and to simplify their financial dealings.
  It is important to remember that these transactions between 
affiliated corporate entities pose no systemic risk, and they should 
not be regulated as if they do. These transactions are used to reduce 
an individual firm's risk by consolidating a hedging portfolio spread 
across a corporate group.
  By doing this, firms can find savings with offsetting positions 
between affiliates and can reduce the need for the group to seek hedges 
in the wider market.
  H.R. 5471 will prevent the redundant regulation of these harmless 
interaffiliate transactions that would tie up the working capital 
companies with no added protections for the market or benefits for the 
consumers. I strongly support this bipartisan, commonsense legislation, 
and I urge all of my colleagues to vote ``yes.''
  Ms. MOORE. Mr. Speaker, I yield such time as she may consume to the 
gentlewoman from California, Ms. Maxine Waters, the ranking member of 
the committee.
  Ms. WATERS. Mr. Speaker, I would first like to thank Congresswoman 
Moore, as well as Congresswoman Fudge, for their efforts to craft the 
text of this bill which represents a dramatic improvement from a 
similar bill that was considered in the Financial Services Committee 18 
months ago.
  At that time, Commodity Futures Trading Commission--that is, the 
CFTC--Chairman Gary Gensler warned that providing such a broad 
interaffiliate exemption from the requirement to clear derivatives 
could harm its efforts to regulate the market.
  Since that time, however, the authors of this legislation have 
significantly tailored the language, incorporating several technical 
edits provided by the CFTC, and the measure now only extends the 
interaffiliate exemption to instances when the commercial risk of an 
exempt end user is being hedged or mitigated.
  Last week, the CFTC provided the same tailored relief that this bill 
would provide. I submit for the Record the CFTC's no-action letter.

                                            U.S. Commodity Futures


                                           Trading Commission,

                                Washington, DC, November 26, 2014.
     Re No-Action Relief from the Clearing Requirement for Swaps 
         Entered into by Eligible Treasury Affiliates

       The purpose of this letter is to amend the no-action relief 
     previously granted by the Division of Clearing and Risk 
     (``Division'') of the Commodity Futures Trading Commission 
     (``Commission'') under No-Action Letter 13-22 to address 
     certain challenges faced by treasury affiliates in 
     undertaking hedging activities on behalf of non-financial 
     affiliates within a corporate group. Those challenges 
     pertained to certain conditions in the prior relief. The 
     Division in this letter is altering some of those conditions 
     to enable additional market participants to avail themselves 
     of the treasury affiliate relief originally set forth in No 
     Action Letter 13-22.


               Treasury Affiliate Exemption from Clearing

       On June 4, 2013, the Division granted no-action relief from 
     the clearing requirement under section 2(h)(1) of the 
     Commodity Exchange Act (``CEA'') and part 50 of the 
     Commission's regulations, for swaps entered into by certain 
     affiliates acting on behalf of non-financial affiliates 
     within a corporate group for the purpose of hedging or 
     mitigating commercial risk (hereinafter referred to as 
     ``treasury affiliates'').
       No-Action Letter 13-22 was issued based on the Division's 
     understanding that treasury affiliates were undertaking 
     hedging activities on behalf of non-financial affiliates that 
     were eligible to elect the end-user exception from clearing, 
     but were themselves ineligible to elect the exception. As 
     discussed further below, because treasury affiliates can act 
     in a wider capacity as treasury centers that provide 
     financial services for all or most of the affiliates within a 
     corporate group, including daily cash management, debt 
     administration, and risk hedging and mitigation, treasury 
     affiliates met the definition of ``financial entity'' under 
     section 2(h)(7)(C)(i)(VIII) of the CEA and thus could not 
     elect the end-user exception. As a result, the Division 
     granted treasury affiliates relief to continue entering into 
     non-cleared swaps on behalf of the non-financial affiliates, 
     subject to specific conditions and requirements.
       The Division has since learned that there are treasury 
     affiliates precluded from electing the relief in No-Action 
     Letter 13-22 because they do not meet certain conditions 
     contained in the letter. As discussed below, based on input 
     from market participants, the Division is hereby issuing this 
     letter to amend some of the conditions and requirements 
     contained in No-Action Letter 13-22 to allow additional 
     treasury affiliates to rely on the relief from clearing.


                   Applicable Regulatory Requirements

       Under section 2(h)(1)(A) of the CEA, it is unlawful for any 
     person to engage in a swap unless that person submits such 
     swap for clearing to a derivatives clearing organization 
     (``DCO'') that is registered under the CEA or exempt from 
     registration if the swap is required to be cleared. On 
     November 29, 2012, the Commission adopted its first clearing 
     requirement determination, requiring that swaps meeting 
     certain specifications within four classes of interest rate 
     swaps and two classes of credit default swaps be cleared.
       Pursuant to section 2(h)(7) of the CEA and Sec. 50.50 of 
     the Commission's regulations, a counterparty to a swap that 
     is subject to the clearing requirement may elect the end-user 
     exception from required clearing provided that such 
     counterparty is not a financial entity, as defined in section 
     2(h)(7)(C) of the CEA, and otherwise meets the requirements 
     of Sec. 50.50 of the Commission's regulations. Thus, the end-
     user exception from required clearing may be elected for 
     swaps that are entered into between two non-financial 
     entities, or between a non-financial entity and a financial 
     entity, for swaps that hedge or mitigate commercial risk.
       As noted above, the Division granted relief from required 
     clearing for treasury affiliates of non-financial companies 
     that fall within the definition of ``financial entity'' under 
     section 2(h)(7)(C)(i)(VIII) of the CEA when acting on behalf 
     of affiliates that otherwise would be eligible to elect the 
     end-user exception from required clearing.''As such, No-
     Action Letter 13-22 effectively allowed treasury affiliates, 
     subject to certain additional requirements and conditions, to 
     take advantage of the end-user exception from clearing that 
     its non-financial affiliates in the corporate group would 
     otherwise have been eligible to elect had they entered into 
     the transactions directly.


                           Summary of Relief

       Since the Division issued No-Action Letter 13-22, market 
     participants have highlighted several requirements and 
     conditions that make use of the relief granted thereunder 
     impractical for many treasury affiliates. As discussed below, 
     the Division is therefore amending the following requirements 
     and conditions.
       i. The requirement that the ultimate parent of a treasury 
     affiliate identify all wholly- and majority-owned affiliates 
     and ensure a majority qualify for the end-user exception.
       Market participants have expressed concerns about the 
     second condition for eligible treasury affiliate status in 
     No-Action Letter 13-22. The second condition requires that 
     the ultimate parent of a treasury affiliate identify all 
     wholly- and majority-owned affiliates within the corporate 
     group and ensure that a majority qualify for the end-user 
     exception.
       Market participants have noted the ratio of the absolute 
     number of financial entities to nonfinancial entities does 
     not necessarily provide meaning-fill information about the 
     corporate family as a whole, and adds on-going surveillance 
     responsibilities and expenses for the corporate family. The 
     Division agrees and has removed the requirement accordingly 
     in the revised relief set forth herein.
       ii. The requirement that the treasury affiliate is not 
     itself or is not affiliated with a systemically important 
     nonbank financial company.
       Market participants have also expressed concerns about the 
     fourth condition for eligible treasury affiliate status in 
     No-Action Letter 13-22. The fourth condition prohibits the 
     treasury affiliate from being, or being affiliated with, a 
     nonbank financial company that has been designated as 
     systemically important by the Financial Stability Oversight

[[Page 16359]]

     Council. As explained above, section 2(h)(7)(D) of the CEA 
     permits affiliates acting as an agent and on behalf of 
     entities eligible for the end-user exception to elect the 
     end-user exception themselves, unless the affiliate is one of 
     seven enumerated types of entities listed in section 
     2(h)(7)(D)(ii). Among others, these prohibited entities 
     include swap dealers, commodity pools, and bank holding 
     companies with over $50 billion in consolidated assets.
       Market participants have pointed out that the fourth 
     condition for eligible treasury affiliate status provides a 
     list of entities that generally tracks the list in section 
     2(h)(7)(D)(ii), except for the addition of systemically 
     important nonbank financial companies. The Division believes 
     that additional restrictions relating to systemically 
     important nonbank financial companies are appropriate. As a 
     result, the Division is maintaining the requirement that the 
     treasury affiliate itself cannot be a systemically important 
     nonbank financial company. However, the Division also 
     recognizes that certain corporate families with significant 
     non-financial operations are precluded from using the 
     existing relief because of the affiliation with a 
     systemically important nonbank financial company, regardless 
     of the degree to which the operations of the financial and 
     non-financial entities are conducted separately.
       The Division believes restricting the treasury affiliate 
     from (i) entering into transactions with, or on behalf of, a 
     systemically important nonbank financial company and (ii) 
     providing any services, financial or otherwise, to such a 
     designated entity, provides sufficient protection from the 
     risks of systemically important affiliate, while allowing the 
     treasury affiliate to provide the necessary support to its 
     related operating entities. The Division is amending the 
     conditions relating to systemically important nonbank 
     financial companies accordingly.
       iii. The requirement that treasury affiliates act only on 
     behalf of certain types of related affiliates.
       Market participants have indicated that the definition of 
     ``related affiliates'' under No-Action Letter 13-22 
     unnecessarily excludes certain entities that perform a cash 
     pooling function for a corporate family that includes a 
     financial entity. The definition of related affiliate 
     currently includes either: (i) a non-financial entity that 
     is, or is directly or indirectly wholly- or majority-owned 
     by, the ultimate parent; or (ii) a person that is another 
     eligible treasury affiliate for an entity described in (i).
       Market participants claim that the limitation is 
     unnecessary, highlighting that the third General Condition to 
     the Swap Activity already precludes an eligible treasury 
     affiliate from entering into swaps with, and on behalf of, 
     its financial affiliates. The Division agrees the definition 
     is problematic because the collection and disbursement of 
     cash within the corporate family is a core function of a 
     treasury affiliate. Given the existing restrictions on swap 
     activity by the eligible treasury affiliate with or on behalf 
     of a financial affiliate, the Division has amended the 
     related affiliate definition to allow entities that provide 
     financial services on behalf of a financial entity to 
     nonetheless qualify as an eligible treasury affiliate.
       iv. The requirement that treasury affiliates transfer the 
     risk of related affiliates through the use of swaps.
       Market participants have expressed concern with the first 
     General Condition to Swap Activity in No-Action Letter 13-22. 
     The condition requires the eligible treasury affiliate enter 
     into the exempted swap for the sole purpose of hedging or 
     mitigating the commercial risk of one or more related 
     affiliates that was transferred to the eligible treasury 
     affiliate by operation of one or more swaps with such related 
     affiliates.
       According to market participants, there are a number of 
     ways for commercial risk to be transferred between 
     affiliates, and that the risk that a treasury affiliate may 
     have been seeking to hedge or mitigate would not necessarily 
     be transferred from the operating affiliate to the treasury 
     affiliate by way of a swap transaction as required by No-
     Action Letter 13-22. The method by which the risk is 
     transferred can be dependent on the type of risk being 
     hedged. For example, it may be more common for foreign 
     exchange risk to be transferred between affiliates through 
     the use of book-entry transfers, as opposed to interest rate 
     risk, where the use of back-to-back swaps may be more 
     prevalent. The Division agrees that this limitation is 
     unnecessarily strict and is revising the condition 
     accordingly. However, as the transfer of risk from the 
     related affiliate to the treasury affiliate will no longer be 
     evinced by back-to-back swaps, the Division will require that 
     the treasury affiliate be able to identify the related 
     affiliate or affiliates on whose behalf the swap was entered 
     into by the treasury affiliate.
       v. The requirement that treasury affiliates do not enter 
     into swaps other than for hedging or mitigating the 
     commercial risk of one or more related affiliates.
       Market participants have questioned whether an eligible 
     treasury affiliate would lose its status if the entity 
     entered into hedging transactions that were mitigating a 
     commercial risk of the treasury affiliate itself. The second 
     General Condition to the Swap Activity states that the 
     eligible treasury affiliate cannot enter into swaps with 
     related affiliates or unaffiliated counterparties other than 
     for the purposes of hedging or mitigating the commercial risk 
     of one or more related affiliates.
       The Division agrees that a treasury affiliate should not 
     lose its status as an eligible treasury affiliate simply 
     because it entered into a hedging transaction on its own 
     behalf. The Division is therefore amending the language in 
     the second condition to allow an eligible treasury affiliate 
     to enter into its own hedging transactions. However, the 
     Division notes that such transactions entered into by the 
     eligible treasury affiliate on its own behalf would not be 
     ``exempted swaps'' as defined below, and may be required to 
     be cleared if subject to the Commission's clearing 
     requirement and no other exception or exemption to clearing 
     applied. Further, the Division notes that treasury affiliates 
     entering into any speculative transaction, on its own behalf 
     or otherwise, would not be consistent with this condition.
       vi. The requirement that related affiliates entering into 
     swaps with the treasury affiliate, or the treasury affiliate 
     itself, may not enter into swaps with or on behalf of any 
     affiliate that is a financial entity.
       Market participants have expressed confusion as to whether 
     a related affiliate can enter into transactions with multiple 
     eligible treasury affiliates under the third General 
     Condition to the Swap Activity in No-Action Letter 13-22. The 
     third condition states that neither any related affiliate 
     that enters into swaps with the eligible treasury affiliate 
     nor the eligible treasury affiliate, may enter into swaps 
     with or on behalf of any affiliate that is a financial entity 
     (a ``financial affiliate''), or otherwise assumes, nets, 
     combines, or consolidates the risk of swaps entered into by 
     any financial affiliate.

  Ms. WATERS. After conversations with CFTC Chairman Massad and 
following this action by the regulator, I felt comfortable having H.R. 
5471 be considered under a suspension of the House rules.
  Now, I have heard from several companies that, while the CFTC's 
actions are welcome, they still need the legal certainty that only H.R. 
5471 could provide.
  On the other side, of course, I have heard concerns that if we pass 
this bill we may be binding the CFTC's hands to deal with a problem 
that could arise in the future.
  I believe that people on both sides of this issue are working in good 
faith and want to help rebuild our economy. Again, I applaud 
Congresswoman Moore's efforts to improve this bill.

                              {time}  1400

  Mr. LUETKEMEYER. Mr. Speaker, I yield 5 minutes to the gentleman from 
Ohio (Mr. Stivers), who is the lead cosponsor of this legislation.
  Mr. STIVERS. Mr. Speaker, I would like to thank the gentleman from 
Missouri for yielding me time.
  I also would like to thank the gentlelady from Wisconsin (Ms. Moore) 
for all her work on this bill. She has been dedicated and engaged and 
hardworking and willing to compromise to move this effort forward to 
help a lot of Main Street businesses that are in my district, her 
district, and that dot the map of America.
  I also want to thank Ms. Fudge and Mr. Gibson for their collaborative 
efforts and their work through the Agriculture Committee on this bill 
as well.
  Mr. Speaker, this bill is the culmination of over 2\1/2\ years' work. 
In 2012, Ms. Moore, Ms. Fudge, Mr. Gibson, and I joined together to 
introduce legislation that clarified rules under the Dodd-Frank Act 
with regard to margin clearing and reporting requirements of 
interaffiliate transactions. What that means is a lot of Main Street 
businesses in various industries, from agriculture to consumer 
products, that work across international boundaries use this central 
treasury unit structure to offset competing or offsetting risks, and 
that way they can decide what their total aggregate risk is and then 
make it much more affordable for a corporation.
  Unfortunately, under the Dodd-Frank Act and the way the rules were 
interpreted by the Commodity Futures Trading Commission, these 
companies were being charged double or triple the cost by imposing 
these central clearing unit ways of managing risk. It just didn't make 
sense, and it actually cost them more money. These companies did not 
add systemic risk, and that is what the rules on swaps were all about 
is to make sure we reduce systemic

[[Page 16360]]

risk. These companies are using these swaps to offset risk to their 
company and their operating risks, and so this is a commonsense piece 
of legislation. In fact, Barney Frank, the author of the Dodd-Frank 
legislation, spoke in favor of this when he was the ranking member in 
the last Congress.
  Unfortunately, there was no activity on the bill in the last 
Congress, and over the last 2 years both the Securities and Exchange 
Commission and the CFTC have worked with us--with Ms. Moore and me--on 
these rules. They have done a pretty good job in that regard, but there 
is more to be done because their rules left out the folks that use 
these centralized treasury units as a specific business model. Just 
last month, in fact, the CFTC published a no-action letter that Ms. 
Moore referred to; but a no-action letter means that it is still part 
of the law, we are just not going to enforce the law.
  What we need to do is fix the law. It is really common sense. So this 
bill that Ms. Moore introduced fixes the law for that centralized 
treasury unit way of doing business. It makes sense. It does not add 
any risk to the system, and it allows these companies that are all over 
America to manage their risk in a smarter way without being charged two 
or three times as much and without risking that they are violating the 
law, even though it is not going to be enforced.
  So I applaud the gentlelady from Wisconsin for changing the law, 
fixing the law, and making it work for a lot of small, medium, and even 
large businesses across America so they can use their cash to hire 
Americans in this tough time, and hire more Americans and not waste it 
on unneeded cost that does not provide any safety to anyone.
  I want to thank the gentlelady from Wisconsin as well as the 
gentleman from New York and the gentlelady from Ohio for all their 
work, and I was proud to be a small part of this.
  I would urge my colleagues to support this bill.
  Ms. MOORE. Mr. Speaker, I am so delighted to yield 2 minutes to the 
gentleman from Minnesota (Mr. Peterson), the ranking member of the Ag 
Committee.
  Mr. PETERSON. Mr. Speaker, I thank the gentlewoman from Wisconsin and 
the others for their work on this legislation.
  H.R. 5471 provides further clarity to those using the derivatives 
market to hedge against risk and builds upon language in H.R. 4413, 
legislation approved by the House last summer to reauthorize the CFTC. 
The bill before us today makes it clear that if an affiliate of a 
company already exempted from clearing engages in a swap with a swap 
dealer or major swap participant in order to hedge or mitigate 
commercial risk, those swaps would also be exempt from the clearing 
requirement as long as they use an appropriate credit support measure.
  While it is my understanding that the CFTC would prefer to address 
this issue through agency action, I also believe that they are 
supportive of this language. Because H.R. 5471 improves the work 
already done by the House, I urge my colleagues to support this bill.
  Mr. LUETKEMEYER. Mr. Speaker, I am prepared to close whenever the 
gentlewoman from Wisconsin is ready.
  Ms. MOORE. Mr. Speaker, I would now like to place the second half of 
the CFTC letter into the Record.

       No-Action Letter 13-22 contemplated the use of multiple 
     eligible treasury affiliates within a corporate family, but 
     the Division agrees with market participants that the third 
     condition does not accurately reflect this. The Division is 
     accordingly amending the third condition to clarify that the 
     restriction on related affiliates and eligible treasury 
     affiliates from entering into swap transactions with 
     financial entity affiliates does not preclude the 
     circumstance where the financial entity affiliate is an 
     eligible treasury affiliate.
       vii. The requirement for the payment obligations of the 
     treasury affiliate to be guaranteed.
       Market participants expressed concern with respect to the 
     fifth General Condition to the Swap Activity in No-Action 
     Letter 13-22. The fifth condition states that the payment 
     obligations of the eligible treasury affiliate on the 
     exempted swap must be guaranteed by: (i) its non-financial 
     parent; (ii) an entity that wholly-owns or is wholly-owned by 
     its non-financial parent; or (iii) the related affiliates for 
     which the swap hedges or mitigates commercial risk.
       Market participants have explained that corporate parents 
     and structures may avail themselves of other types of support 
     arrangements, such as keepwell agreements, letters of credit, 
     or revolving credit facilities for example, which would not 
     satisfy the requirements of No-Action Letter 13-22. As a 
     result, the Division is removing the condition to accommodate 
     the additional support arrangements that may exist with 
     regard to the eligible treasury affiliate's payment 
     obligations.


                      Division No-Action Position

       The Division recognizes the benefits that arise from the 
     use of treasury affiliates within corporate groups and has 
     determined to provide the following no-action relief; 
     described below.
       For purposes of this no-action letter only, the following 
     definitions shall apply:
       Eligible treasury affiliate means a person that meets each 
     of the following qualifications:
       (i) The person is (A) directly, wholly-owned by a non-
     financial entity or another eligible treasury affiliate (its 
     ``non-financial parent''), and (B) is not indirectly 
     majority-owned by a financial entity, as defined in section 
     2(h)(7)(C)(i) of the CEA;
       (ii) The person's ultimate parent is not a financial entity 
     as defined in section 2(h)(7)(C)(i) of the CEA;
       (iii) The person is a financial entity as defined in 
     section 2(h)(7)(C)(i)(VIII) of the CEA solely as a result of 
     acting as principal to swaps with, or on behalf of, one or 
     more of its related affiliates, or providing other services 
     that are financial in nature to such related affiliates;
       (iv) The person is not, and is not affiliated with, any of 
     the following:
       (A) a swap dealer;
       (B) a major swap participant;
       (C) a security-based swap dealer; or
       (D) a major security-based swap participant.
       (v) The person is not any of the following:
       (A) a private fund as defined in section 202(a) of the 
     Investment Advisors Act of 1940 (15 U.S.C. Sec. 80-b-2(a));
       (B) a commodity pool;
       (C) an employee benefit plan as defined in paragraphs (3) 
     and (32) of section 3 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. Sec. 1002);
       (D) a bank holding company;
       (E) an insured depository institution;
       (F) a farm credit system institution;
       (G) a credit union;
       (H) a nonbank financial company that has been designated as 
     systemically important by the Financial Stability Oversight 
     Council; or
       (I) 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.
       (vi) The person does not provide any services, financial or 
     otherwise, to any affiliate that is a nonbank financial 
     company that has been designated as systemically important by 
     the Financial Stability Oversight Council.
       Non-financial entity means a person that is not a financial 
     entity as defined in section 2(h)(7)(C)(i) of the CEA.
       Related affiliate means with respect to an eligible 
     treasury affiliate:
       (i) A non-financial entity that is, or is directly or 
     indirectly wholly- or majority-owned by, the ultimate parent; 
     or
       (ii) A person that is another eligible treasury affiliate.
       The Division will not recommend that the Commission 
     commence an enforcement action against an eligible treasury 
     affiliate for its failure to comply with the requirements 
     under section 2(h)(1)(A) of the CEA and part 50 of the 
     Commission's regulations to clear a swap with an unaffiliated 
     counterparty or another eligible treasury affiliate (the 
     ``exempted swap'') that is subject to required clearing 
     pursuant to Sec. 50.4 of the Commission's regulations, 
     subject to the following conditions:


                General Conditions to the Swap Activity

       (i) The eligible treasury affiliate enters into the 
     exempted swap for the sole purpose of hedging or mitigating 
     the commercial risk of one or more related affiliates that 
     was transferred to the eligible treasury affiliate;
       (ii) The eligible treasury affiliate does not enter into 
     swaps with its related affiliates or unaffiliated 
     counterparties other than for the purpose of hedging or 
     mitigating its own commercial risk or the commercial risk of 
     one or more related affiliates;
       (iii) Neither any related affiliate that enters into swaps 
     with the eligible treasury affiliate nor the eligible 
     treasury affiliate, enters into swaps with or on behalf of 
     any affiliate that is a financial entity (``financial 
     affiliate''), or otherwise assumes, nets, combines, or 
     consolidates the risk of swaps entered into by any financial 
     affiliate, except in the case of financial affiliates that 
     qualify as eligible treasury affiliates under this letter; 
     and

[[Page 16361]]

       (iv) Each swap entered into by the eligible treasury 
     affiliate is subject to a centralized risk management program 
     that is reasonably designed (A) to monitor and manage the 
     risks associated with the swap, and (B) to identify the 
     related affiliate or affiliates on whose behalf each exempted 
     swap has been entered into by the eligible treasury 
     affiliate.


                          Reporting Conditions

       With respect to each swap that an eligible treasury 
     affiliate (``electing counterparty'') elects not to clear in 
     reliance on the relief provided in this letter, the reporting 
     counterparty, as determined in accordance with Sec. 45.8 of 
     the Commission's regulations, shall provide or cause to be 
     provided the following information to a registered swap data 
     repository or, if no registered swap data repository is 
     available to receive the information from the reporting 
     counterparty, to the Commission, in the form and manner 
     specified by the Commission:
       (i) Notice of the election of the relief and confirmation 
     that the electing counterparty satisfies the General 
     Conditions to the Swap Activity of this no-action relief 
     specified above;
       (ii) How the electing counterparty generally meets its 
     financial obligations associated with entering into non-
     cleared swaps by identifying one or more of the following 
     categories, as applicable:
       (A) A written credit support agreement;
       (B) Pledged or segregated assets (including posting or 
     receiving margin pursuant to a credit support agreement or 
     otherwise);
       (C) A written guarantee from another party;
       (D) The electing counterparty's available financial 
     resources; or
       (E) Means other than those described in (A)-(D); and
       (iii) If the electing counterparty is an entity that is an 
     issuer of securities registered under section 12 of, or is 
     required to file reports under section 15(d) of, the 
     Securities Exchange Act of 1934:
       (A) The relevant SEC Central Index Key number for such 
     counterparty; and
       (B) Acknowledgment that an appropriate committee of the 
     board of directors (or equivalent body) of the electing 
     counterparty has reviewed and approved the decision to enter 
     into swaps that are exempt from the requirements of section 
     2(h)(1), and if applicable, section 2(h)(8) of the CEA.
       (iv) If there is more than one electing counterparty to a 
     swap, the information specified in the Reporting Conditions 
     of this no-action relief specified above shall be provided 
     with respect to each of the electing counterparties.
       (v) An entity that qualifies for the relief provided in 
     this no-action letter may report the information listed in 
     paragraphs (ii) and (iii) above, annually in anticipation of 
     electing the relief for one or more swaps. Any such reporting 
     under this paragraph will be effective for purposes of 
     paragraphs (ii) and (iii) above for 365 days following the 
     date of such reporting. During the 365-day period, the entity 
     shall amend the report as necessary to reflect any material 
     changes to the information reported.
       (vi) Each reporting counterparty shall have a reasonable 
     basis to believe that the electing counterparty meets the 
     General Conditions to the Swap Activity for the no-action 
     relief specified above.
       This no-action letter, and the positions taken herein, 
     represent the view of the Division only, and do not 
     necessarily represent the position or view of the Commission 
     or of any other office or division of the Commission. The 
     relief issued by this letter does not excuse the affected 
     persons from compliance with any other applicable 
     requirements contained in the CEA or in the Commission's 
     regulations issued thereunder. Further, this letter, and the 
     relief contained herein, is based upon the information 
     available to the Division. Any different or changed material 
     facts or circumstances might render this letter void. As with 
     all no-action letters, the Division retains the authority to, 
     in its discretion, further condition, modify, suspend, 
     terminate or otherwise restrict the terms of the no-action 
     relief provided herein. This letter supersedes No-Action 
     Letter 13-22.
           Sincerely,
                                                    Phyllis Dietz,
                                                  Acting Director.

  Ms. MOORE. Mr. Speaker, I have no further requests for time.
  Again, I just want to thank everyone who was involved in this 
process. This is something that is going to protect thousands of jobs 
across our country. People often criticize us for not doing things in a 
bipartisan manner, but I think this is exemplary of what we can do when 
we really work at it, even though it has taken a couple of years.
  I yield back the balance of my time.
  Mr. LUETKEMEYER. I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Missouri (Mr. Luetkemeyer) that the House suspend the 
rules and pass the bill, H.R. 5471.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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