Manufacturers are one step closer to gaining certainty on whether they will be faced with unnecessary regulatory hurdles simply for structuring in an efficient way to manage business risk.

Many manufacturers use derivatives to hedge everyday business risks stemming from fluctuations in commodity prices, currency and interest rates. These manufacturers, and other nonfinancial end-users, typically employ a “command center” called a centralized treasury unit (CTU) to oversee the company’s derivatives transactions, vital to a manufacturer that  has multiple affiliates. These CTUs are useful in centralizing expertise and corporate governance and to reduce the amount of swap transactions with bank counterparties. While the Dodd-Frank Act provided end-users with an exemption from burdensome clearing requirements, some CTU structures may be considered a “financial entity,” making them ineligible for clearing exception. Without a fix, these end-users would be subject to costly regulatory requirements that were not intended for them by law.

The House acted this week to overwhelmingly pass legislation (H.R. 5471) introduced by Reps. Gwen Moore (D-WI) and Steve Stivers (R-OH) to make clear that manufacturers will still be able to claim the Dodd-Frank end-user clearing exception even if they use a CTU structure to hedge risk. Prior to the House vote, the NAM sent a letter to Congress from the Coalition for Derivatives End-Users urging support for the bill and thanked the House for approving this pro-jobs measure.

Until manufacturers can rely on the certainty of a legislative fix to the CTU issue, it is important to note that regulators have recently taken positive steps toward alleviating this issue for end-users. Last week, the CFTC issued No-Action Relief which makes additional improvements to the No-Action Relief issued by the CFTC in 2013. The new relief addresses concerns that the Coalition for Derivatives End-Users raised with the CFTC in response to the original relief issued last year.

The NAM will continue to urge the Senate to approve H.R. 5471, and the end-user margin fix (S. 888) as soon as possible.