Big business seeks exemption from derivatives rules

by Nancy Watzman

investigations

Mar 16, 2011 1:29 pm

Some of Washington’s most powerful trade associations and big corporations are pushing to get an exemption from derivatives regulations mandated by the Dodd-Frank financial law—and House Republicans are planning to introduce legislation to do just that.

Under the umbrella of an ad hoc coalition, known as the Coalition for Derivatives End-Users, which is run by the U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable, among others, the coalition first weighed in during the debate over the financial law.

Since the law’s passage, the coalition has also been presenting its case with financial agencies, attending meetings with staff and filing comment letters.

At a hearing today in the House Financial Capital Markets & Government Sponsored Enterprises subcommittee, Republicans are planning to discuss legislation to overturn or limit parts of the Dodd-Frank law. One of the bills, to be sponsored by freshman Rep. Michael Grimm, R., N.Y., would exempt companies that use derivatives to hedge commercial risk from new rules that these transactions be routed through clearinghouses.

In an attempt to mitigate systemic risk–shaky derivatives transactions helped contributed to the financial meltdown of several banks during the crisis–the Dodd-Frank law mandated that derivatives trading be cleared through such clearinghouses. The coalition argues that companies that use derivatives to hedge internal risk and do not post risk to the economy.

Hearing witnesses include Mr. Luke Zubrod, director of Chatham Financial, which is also active in the coalition. The company was one of the groups, along with other members of the coalition, to commission a study–criticized as "astroturfing" –released in February that claimed derivatives regulations would cost companies billions of dollars and lead to the loss of milions of jobs. Chatham Financial representatives have also attended meetings with coalition members on derivatives at financial agencies.

According to a spokesman for the U.S. Chamber of Commerce, which is one of the steering committee members, the coalition claims more than 270 members. (See letter listing them all here.) Other steering committee members are the American Petroleum Institute, the Business Roundtable, Financial Executives International, the National Association of Corporate Treasurers, the National Association of Manufacturers, the National Association of Real Estate Investment Trusts, and the Real Estate Roundtable.

Some large corporations have been active both in the coalition and individually on these issues. In February, for example, a MillerCoors executive testified on behalf of the coalition at a House Financial Services hearing on derivatives. MillerCoors' lobbying disclosure forms show that last year the company hired the lobbying firms Fierce, Isakowitz & Blalock and Elmendorf Strategies to lobby on derivatives issues.

BP America has weighed in on derivatives rules with the CFTC. In this ex parte communication, company representatives expressed concerns about whether the definition of "swap dealer" would extend to those in the petroleum industry that both use derivatives to hedge internal risk and market contracts to others. The company has met several times with agency officials on a variety of issues related to Dodd-Frank, the most recent meeting occuring last week.

Last year BP America also hired the lobbying firms the Alpine Group and the Podesta Group to lobby on derivatives issues. BP was also listed on this letter written by the coalition during debate over the Dodd-Frank law.

Other companies that have attended agency meetings on behalf of the coalition or weighed in on their own include General Electric, IBM, Kraft Foods, Procter & Gamble, General Motors, and MIcrosoft.

The coalition does not file lobbying disclosure forms, so it is difficult to know how much money is being spent on these efforts and what shares are being paid by whom.

However, the major trade associations backing the coalition are lobbying powerhouses (See here, here, and here.) The U.S. Chamber of Commerce was particularly active in efforts last fall to elect Republicans–see its spending on issue ads here.

Coalition for Derivatives End-Users–agency meetings and comment letters

Commodity Futures Trading Commission

Meetings

Comment letters