SEC Considering Dodd-Frank Rulemaking for Securities-Based Swaps

The U.S. Securities and Exchange Commission may propose rules governing clearing of securities- based swaps including an exception for so-called end users, companies that use derivatives to hedge risk.

SEC commissioners meeting in Washington today will consider an end-user measure similar to one proposed by the Commodity Futures Trading Commission on Dec. 9. The two agencies, writing rules for the derivatives market as directed by the Dodd-Frank Act, must decide whether to exempt interest-rate, currency and commodity hedging trades.

The SEC proposal would give commercial companies such as utilities, manufacturers and agricultural businesses step-by- step instructions on how to trade derivatives to hedge commercial risk without being subject to the new margin and capital demands imposed by Dodd-Frank, the financial-regulation law enacted in July.

The proposed rule would require a company using the end- user exception to send information to the SEC about how it will meet its financial obligations in a security-based swap. The options include a written credit support agreement, an agreement to pledge or segregate assets, a third-party guarantee or basing it solely on the counterparty’s available financial resources.

The SEC would also seek information on the company pursuing the clearing exemption for end users. That data would include indentifying information and how the trade is being used as a hedge to mitigate commercial risk. The information would be channeled into a swap data repository.

Conflict Minerals

SEC commissioners may also propose rules that would require U.S. companies to expand disclosure of their use of so-called conflict minerals -- tin, tantalum, tungsten and gold from the Democratic Republic of Congo whose export has help fund wars in that African country. Dodd-Frank requires that companies using those metals ensure their purchases are “conflict-free.”

The idea is “to get a handle on the purchase of minerals that are fueling the conflict in the Congo, which has become one of the most urgent humanitarian crises in the world,” said Adam Kanzer, general counsel for Domini Social Investments.

The other two proposals would require more company disclosures regarding mining safety and would require resource- extraction companies to disclose payments they make to governments.

To contact the reporter on this story: Jesse Hamilton in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.