In Case You Missed It…5 Articles To Read

To mark the first anniversary of Dodd-Frank, here are some key insights.

1.   Atlas Shrugged: Will Regulators? — Funding SEC and CFTC

Meanwhile, SEC and CFTC officials have held more than 1,300 meetings with outside firms and individuals to discuss the Dodd-Frank law since it was passed, according to a tally by law firm Davis Polk & Wardwell LLP. So far, the SEC has missed more than three-quarters of its Dodd-Frank rule-making deadlines; the CFTC has missed 88% of its deadlines, the law firm said.Geithner steps to the defense of Dodd-Frank

Two and a half years ago, with our country on the edge of a second Great Depression, we met with the president in the White House to discuss whether to move in those first months of his administration to legislate fundamental reform of the financial system—or wait until we had put the crisis behind us.

2.   A comprehensive summary of Dodd-Frank

3.   CMC joined with our ag colleagues to push for retention of key Census Bureau reports.

          Agricultural Groups Scramble to Save Critical Reports

CHICAGO (Dow Jones)–Producers of cotton, wheat flour and livestock feed are searching for ways to avoid losing Census Bureau reports critical to their industries that are slated to be discontinued due to budget cuts.

A coalition of agricultural trade associations is slated to meet Wednesday with the top economist of the U.S Department of Agriculture to discuss attempts to save the reports issued by the Census Bureau. Time is running out to find a solution, as some of the reports will be stopped after next month.

4.   CMC’s work on swap rules related to portfolio hedging with the Energy Working, jointly known as the Commercial Alliance, was highlighted in a recent Platts article:  Energy group wants CFTC to take a larger view for swaps rules.

According to the group’s letter, basing new rules on each swap transaction, rather than on a company’s overall portfolio, is “flawed” and would “degrade risk management best practices in swap markets.” For example, the group highlighted a utility company whose hedging portfolio may be long for physical generation, but short physical load obligations. The group argued that the CFTC should view the overall portfolio of hedging as the basis for determining if the company’s hedging is speculative or a legitimate hedging strategy, rather than making this determination based on an individual swap.

“If a transaction-by-transaction approach is taken to its logical end, the utility would be required to put on an individual hedge for each of its customer accounts, of which there might be millions,” the group wrote.

5.   See Brian Scheid’s Platts article below.

Brian Scheid, brian_scheid@platts.com

Washington (Platts)–20Jul2011/400 pm EDT/2000 GMT

A group lobbying on behalf of some of the world’s biggest energy companies wants the US Commodity Futures Trading Commission to take a longer view when implementing its new over-the-counter derivatives regulations.

Many of the CFTC’s swaps rules, which are still being developed under the Dodd-Frank Act, would apply on a transaction-by-transaction basis, but swap market participants typically manage their exposures and hedges by portfolio, which may include thousands of individual transactions.

If commercial energy firms had to manage their swaps on an individual basis, as many proposed derivatives rules would force them to, they would be hit with “exorbitant costs” and hedging by energy companies may become impractical, according to a letter the group sent to the CFTC late Tuesday.

“At worst, a transaction-by-transaction approach might make hedging so difficult as to create an unworkable regulatory environment,” the group wrote.

The group behind the letter, known as the Commercial Alliance, is made up of the Working Group of Commercial Energy Firms and the Commodity Markets Council. The group includes Hess, ConocoPhillips and BP.

According to the group’s letter, basing new rules on each swap transaction, rather than on a company’s overall portfolio, is “flawed” and would “degrade risk management best practices in swap markets.” For example, the group highlighted a utility company whose hedging portfolio may be long for physical generation, but short physical load obligations. The group argued that the CFTC should view the overall portfolio of hedging as the basis for determining if the company’s hedging is speculative or a legitimate hedging strategy, rather than making this determination based on an individual swap.

“If a transaction-by-transaction approach is taken to its logical end, the utility would be required to put on an individual hedge for each of its customer accounts, of which there might be millions,” the group wrote.

The issue is particularly worrisome for energy firms, who may enter into several different types of swaps to hedge different risks, such as a natural gas basis swap to hedge location price risk, a foreign exchange swap to hedge currency risk and a weather swap to hedge weather-driven changes to natural gas use, the group said.

Each of these different hedges may account for a single portfolio, but if the CFTC were to regulate each individual swap in this portfolio, the company hedging may not be able to show each swap is being taken for a legitimate hedging purpose or simply speculating.

This could mean the company would not be able to qualify for the CFTC’s proposed bona fide hedge exemption, which would leave them outside the position-limits regime the agency has proposed and may keep them from getting an end-user exemption would keep them from having to clear each swap.

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