Sens. Mike Johanns, R-Neb., and Jon Tester, D-Mont., this week introduced a bill to clarify the exemption for farmers, ranchers, small businesses and manufacturers from margin requirements in the Dodd-Frank financial legislation.
The senators explained that farmers and small businesses are classified as "end-users" – those who use derivatives to contract commodities in advance of harvest, for example, to manage risk and insure against price fluctuations.
Dodd-Frank exempts end-users from margin requirements, but forces non-end-users and those speculating on market prices to post margin to cover the risks associated with their derivative purchases. It also includes an exemption for non-financial end-users based on the low risks they pose to the financial system.
Though Dodd-Frank does lay out these stipulations, the senators said their legislation makes that exemption more explicit.
Johann's and Tester's bill is identical to legislation unanimously passed in the House of Representatives Financial Services Committee on Tuesday.
"Farmers, ranchers and businesses use every tool available to responsibly protect themselves and their customers from unforeseen risks like drought or fluctuations in fuel, fertilizer or commodity prices," Johanns said. "Our bipartisan legislation allows these local businesses to continue doing that without battling burdensome and costly margin requirements meant to cover day-traders playing the markets."
The senators said despite Congress' intent with Dodd-Frank, there has been a debate over how broadly the end-user exemption would apply.
The Commodity Futures Trading Commission and Securities and Exchange Commission previously issued a joint rule that would exempt end-users from margin, but the Federal Reserve has issued regulations that would capture many end-users in their regulations, the senators explained.
Joining Johanns and Tester in supporting the bill are Sens. Roy Blunt, R-Mo., Mike Crapo, R-Idaho, Joe Donnelly, D-Ind., Kay Hagan, D-N.C., Heidi Heitkamp, D-N.D., Amy Klobuchar, D-Minn., Jerry Moran, R-Kan., Richard Shelby, R-Ala., Pat Toomey, R-Pa., and Mark Warner, D-Va.