Agriculture and Energy Co-ops Demand "Swap Dealer" Definition

By Sarah Gonzalez

 © Copyright Agri-Pulse Communications, Inc

WASHINGTON, July 21-Representatives from agricultural and energy cooperatives, farm credit organizations and community banks gathered July 21 to make their case regarding the Dodd-Frank Act so as not to be categorized as “swap dealers.” 

The House Committee on Agriculture hearing, “Derivative Reform: The View from Main Street,” held Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), and six main street business CEO's, presidents and directors in two panels regarding the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

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Glenn English, CEO of National Rural Electric Cooperative Association in Arlington, Va., stated under testimony that his company does not yet know which of his commercial transactions and commodity derivatives would be labeled “swaps” under Dodd-Frank. 

“A full year later, the CFTC has not defined the most basic term in the statute,” he said. “How those contracts are ultimately labeled could have dramatic impacts for cooperative consumers. Everyone is waiting for this definition”

Members of the House are also pressuring the CFTC to define the term in alignment with the Securities and Exchange Commission's definition.  In his second letter to Chairman Gensler asking for clarification on the “swap dealer” definition, Rep. Scott DesJarlais (R-Tenn.) voiced concern for the nation's commercial energy companies, agricultural companies, agricultural and electric cooperatives, community banks and farm credit system institutions, along with the proper implementation of Title VII of the Dodd-Frank Act.

“The ability to manage risk is crucial for the agriculture industry,” said DesJarlais. “Placing undue burdens on organizations that pose no risk of creating a financial crisis will do little more than drive up their cost of doing business.”

In previous weeks, House Committee on Agriculture Chairman, Frank Lucas, vehemently addressed issues surrounding the time constraints, definitions and regulations present in Dodd-Frank. The CFTC did finalize an Order to extend the original dates, which the Committee deemed too time constrictive for regulations to be effective.

“Unfortunately, we have not seen similar responses on most of the concerns that have been raised in this hearing room,” said Lucas. “The Commission has given us little reason to believe that the clarity and scope of these regulations will improve.”

Collin Peterson (D-MN), Agriculture Committee ranking member, questioned the Committee's focus on the CFTC by bringing the accountability of the prudential regulators into light. 

“People forget that the CFTC is not the only responsible party in implementing the derivatives title,” he said. “Last April, the prudential regulators put forth their proposed rule on margin requirements for swaps with dealers they regulate. When are we bringing the prudential regulators in to answer questions about this proposed rule?”

In defense of the CFTC and the its processes on revising the Dodd-Frank Act, Gensler reminded the Committee that the public is invited to comment on the CFTC's plan to evaluate their existing rules until August 29. Gensler claimed that Dodd-Frank does not hold the threat to agriculture and energy cooperatives that the Committee and potential end-users propose. 

“The act does not require non-financial end-users that are using swaps to hedge or mitigate commercial risk to bring their swaps into central clearing,” he said. “The act leaves that decision up to the individual end-users.”

Gensler concluded by emphasizing his belief that urgency is necessary to implement the act's regulations.  

“I believe we're on track to do what Congress intended us to do,” he said. “Only with reform can we reduce risk in the swaps market - risk that contributed to the 2008 financial crisis. Until the CFTC completes its rule-writing process and implements and enforces those new rules, the public remains unprotected.”

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