"These are events that don't often happen," Russell Wasson, director of tax, finance and accounting policy at National Rural Electric Cooperative Association, said of the financial crisis that spawned Dodd-Frank. "It's not going to get any better or worse in a year or two."
Wasson, who made the comment at a joint SEC/CFTC roundtable on the implementation of rules for swaps and security-based swaps this week, may in fact be getting the breathing space he's asked for.
However long it does take, it is becoming apparent that the Dodd-Frank regulatory process is going to be a long haul. The Commodities Futures Trading Commission, one day after the conclusion of the two-day roundtable, . Those interested now have until at least June 3 to get their two cents in.
In addition, many were heartened when, on April 29, the its "proposed determination" to exempt foreign exchange forwards and swaps transactions from mandatory clearing through a central clearing house. Also, a CFTC proposal made earlier that month would exempt oil companies, airlines, farmers and other companies that hedge for economic reasons from .
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Barack Obama last July 21, requires an unprecedented two- to five-year rulemaking process in which some 250 new regulations need to be researched and written by more than a dozen regulatory agencies. In addition to the Treasury, SEC and CFTC, these rulemaking agencies include the Department of Education, the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Comptroller of the Currency.
And timing may in fact be important, as companies like Wasson's look to budget for both compliance costs and possible margin requirements.
"If we don't need to spend 2011 dollars, this is money we could put to good use in rural electricity projects," Wasson told the panel, calling for the government to "test the regulatory structure on financials first" and calling for "time to watch and learn to participate in the new regulatory structure" and the creation of a "CFTC office to assist commercial end users."
Verett Mims, assistant treasurer at Boeing Co., expressed appreciation for the proposed foreign exchange exemption, but called for clarification of rules and regulations governing hedge accounting. Her company, in addition to the need to hedge steel and other commodities, is a frequent user of interest-rate swaps to smooth out volatility, she said.
"We would be precluded from hedging unless we get hedge accounting," she said. "We've had a long duration strategy which we thought was a great thing. This will become impossible, she added, "now that we don't have the ability to net" derivatives exposures. "We prefer to use that cash and create jobs."
Wasson, for his part, questioned the basic applicability of the proposed regulations to the National Rural Electric Cooperative Association. "The majority of our transactions are with other end users," he explained. "We don't really have counterparties. Our commercial hedging needs are very concentrated from a geographical point of view. Our optionality is the need for electricity, which constantly changes, just like it will when this meeting is over and we all leave and turn off the lights."
He added, "Our customers are our owners and the costs are going to flow through to our end users."
Another sticking point for many hedgers is the expected regulatory requirement that hedging be approved at the corporate board level.
"For every hedging program we actually have a white paper which we submit to management," said Boeing's Mims. "I would think one-time corporate board approval would do the trick."
William Donovan, vice president of investments at the U.S. Steel Pension Fund, complained about the personnel resources and data collection costs to be generated by the new rules. "We'd be anticipating that the buy-side doesn't have to report, but has to be prepared to report in case the sell-side doesn't," he said. The "two-and-a-half people" on his staff that would be available for this function "would have to do all this, taking away time from investing."
But not everybody present favored weakening or delaying the proposed rules.
Heather Slavkin, senior legal and policy advisor at the AFL-CIO office of investment, said she participated in the panel to try to ensure that "folks like my members don't have to pay their taxpayer dollars to support another bailout." She added, "These nitpicks are ignoring this."