Derivatives Lobby Prepared for Major Victory

Banks, energy companies and other derivatives dealers are poised to win a big one today, with approval of a federal rule exempting most of them from new government oversight.

As The New York Times reports, the Securities and Exchange Commission and the Commodity Futures Trading Commission are expected to okay a much-weakened version of a rule regulating the derivatives market.

The original proposal, released in 2010, called for regulation of dealers arranging $100 million or more in swaps. The revised rule is expected to set the threshold much higher, at $8 billion.

The rule, which aims to reduce risk in the markets in the wake of the 2008 financial crisis, is mandated by the Dodd-Frank Act.

The changes follow intense lobbying – formal and otherwise – by derivatives traders.

Agency officials have met with a steady parade of business representatives and their lawyers over the past 14 months. One of the major issues was the definition of swap dealers.

A coalition of energy firms, represented by Hunton & Williams, brought in former CFTC Chair Sharon Brown-Hruska as a consultant and met repeatedly with the CFTC. (Brown-Hruska is now a vice president with NERA Economic Consulting.)

Members of Congress also weighed in.

Senate Agriculture Chair Debbie Stabenow (D-MI) and House Agriculture Chair Frank Lucas (R-OK) sent a letter to the CFTC last month, discouraging an overly broad definition.

“We would urge the commission to consider that many commercial end-users, particularly those with inherent physical commodity price risk, actively trade in swaps to facilitate hedging of those risks,” they wrote.

Rep. Steve Stivers (R-OH) proposed legislation exempting inter-affiliate swaps from the regulation. Organizations lobbying the bill included the American Bankers Association, Business Roundtable, General Electric, Shell Oil Company and the U.S. Chamber of Commerce.

A separate bill, introduced by Rep. Randy Hultgren (R-IL), a member of the House Agriculture Committee, also addressed the definition of swap dealer. Hultgren’s legislation, which he described as protecting farmers and electric utilities from over-regulation, set a proposed floor of $3 billion in trades.

Although the bill was lobbied by groups such as National Rural Electric Cooperative Association and the National Council of Farmer Cooperatives, it also drew attention from major energy companies such as BP and Sempra.

It is the big players who have dominated the debate. The list below, of major companies and organizations meeting with CFTC to discuss the definition of swap dealers, includes some of the nation’s largest lobbying clients.

American Bankers Association
American Electric Power
American Gas Association
American Wind Energy Association
Bank of America
Berkshire Hathaway
Better Markets
BlueMountain Capital Management
Boeing Company *
BOK Financial
Brevan Howard
Bunge Global Agribusiness
Business Council for Sustainable Energy
Capital One
Caterpillar, Inc.
Chatham Financial
Chicago Trading Company
CIT Capital Markets
CIT Group
Citadel LLC
CME Group
Commerce Bank
Commodity Markets Council
ConocoPhillips *
Constellation Energy Group
D.E. Shaw Group
DC Energy
Deere & Company
Delta Strategies for Gavilon
Direct Energy
Dominion Resources
DTE Energy
Edison Electric Institute (EEI)
Edison International
Electric Power Supply Association
Elliott Management Corporation
European Investment Bank
Fidelity Investments
Fifth Third Bank
Financial Services Roundtable
First Tennessee Bank
FMC Corporation
FTN Financial
General Electric *
General Motors
GenOn Energy
Gibson Dunn
Goldman Sachs
IMC Financial Markets
Independent Community Bankers of America
International Swaps and Derivatives Association
Investment Company Institute
KfW Development Bank
King Street Capital Management, L.P.
Louis Dreyfus Commodities
M&T Bank
Managed Funds Association
Managed Funds Association
Morgan Stanley
National Association of Manufacturers
National Rural Utilities Cooperative Finance Corp
Natural Gas Supply Association
NextEra Energy
Nossaman LLP
Pacific Gas & Electric
Peabody Energy
Procter & Gamble
Public Service Enterprise Group (PSEG)
Regions Bank
S.A.C. Capital Advisors, L.P.
Sacramento Municipal Utilities District
Securities Industry and Financial Markets Association
Sempra Energy
Shell Energy North America
Shell Oil Company
Shell Trading
Solar City
Southern Company
Sullivan & Cromwell LLP
U.S. Chamber of Commerce *
Union Bank
US Bank
Webster Bank
Wells Fargo

* Listed by the Center for Responsive Politics a top lobby spender in 2011.

Note: The above list is based on a review of the CFTC listings of external meetings. We limited entries to those in which the trader definition was specifically cited as a topic of discussion.

Laurie Bennett is a longtime newspaper journalist and winner of the Polk Award. She is co-founder of and also blogs for Forbes.

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