New bill still has no commercial exemption but is expected to be amended.
The financial reform bill introduced today by Senate Banking Committee Chairman Chris Dodd gives little ground to corporate hedgers. In fact, he acknowledges the derivatives section of the bill “largely reflects the November draft,” which did not include an exemption to clearing requirements for commercial hedging activities using standardized derivatives. That appears to be a big problem for companies that believe the cost of margining will make hedging less economical, and the lack of customized solutions will make it harder to obtain hedge accounting.
However, the derivatives section of the overall legislation—which also creates a consumer financial protection entity, bakes in the so-called Volcker Rule and requires too-big-to-fail banks to devise “living wills” to be enacted if they run into trouble, among other things—is more or less a placeholder. Senator Dodd said that two of his Banking Committee colleagues, Jack Reed and Judd Gregg, are working on a compromise amendment that may be inserted when the full committee considers the bill.
If that amendment makes the bill look more like the House version that passed last fall, treasurers say they will be able to live with it. At a recent meeting of the NeuGroup’s Treasurers’ Group of Thirty, participants said the House bill’s exemption for corporate hedgers is sufficient for an acceptable amount of their hedging business to take place unimpeded.
Senator Dodd, who is not running for re-election, says there are really only 60-70 days left in the legislative calendar this year, so the pressure is on to get the bill passed—something that may force him to reconsider his earlier vocal opposition to a corporate exemption.