The Dodd-Frank Act was passed with the intent of exempting companies outside the financial services business from margin and clearing requirements when these companies use derivatives to manage and reduce business risk, rather than taking speculative risk.  Of course, for these companies – known as end-users – the devil turned out to be in the details.

In the years since Dodd-Frank became law important technical glitches in the law have been identified.  One is a little known provision that runs the risk of wreaking havoc on many end-user companies.  As a best practice, many end-user companies create a “centralized treasury unit” or CTU to consolidate and better oversee and manage all the derivatives activity within the company and its affiliates.

Despite their being a best practice for end-users, Dodd-Frank would treat CTUs as financial institutions, subjecting them to margin and clearing requirements.  Fortunately, this week the House passed by voice vote H.R. 5471 – sponsored by Reps. Moore, Stivers, Gibson and Fudge – that rectifies this anomaly.  Sens. Susan Collins (R-ME) and Amy Klobuchar (D-MN) have picked up the ball in the Senate by introducing a companion measure.

Business Roundtable welcomes the House’s action and appreciates all the the efforts of the sponsors in both the House and Senate.  This bill fixes language in Dodd-Frank that creates needless regulation and penalizes companies for adopting a best practice for risk management.  If left uncorrected, it could lead to the perverse result of companies unnecessarily increasing rather than decreasing risk. The Senate should act quickly and pass the legislation with same strong bipartisan support as shown in the House.