[Congressional Record (Bound Edition), Volume 161 (2015), Part 13]
[House]
[Pages 18171-18173]
[From the U.S. 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;
       ``(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

[[Page 18172]]

     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.
  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

[[Page 18173]]

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.

                          ____________________