Commodity Exchange Act and Securities Exchange Act of 1934 Amendments

Floor Speech

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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.

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.

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