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September 21, 2009 |
Obama Administration's Proposed OTC Derivatives Legislation On August 11, 2009, the United States Treasury Department sent to Congress proposed legislation that would make sweeping changes to how the markets for over-the-counter ("OTC") derivatives, and the participants in those markets, are regulated. Schiff Hardin recently published a summary of the 115-page draft bill: The legislation proposes an entirely new market structure for all derivatives, including energy derivatives. The definitions include such energy derivatives as purchases of power and natural gas for future delivery (energy forward contracts), the purchase for future delivery of fuels for electric generation and all financially-settled derivatives for which the underlying reference asset is an energy commodity. The legislation would require all "standardized" energy derivatives to be traded on exchanges regulated by the Commodity Futures Trading Commission ("CFTC"). It would require all fungible derivatives to be cleared by a CFTC-registered clearing organization. And it would require derivatives dealers and other major market participants (including, potentially, energy companies) to be regulated by the CFTC. Major market participants would be subject to capital and margin rules with respect to virtually all of their cleared and uncleared energy derivatives transactions. They would also be required to meet other record-keeping, reporting and business practices requirements. Some of these new regulatory requirements could make hedging ordinary business risks of an energy business more difficult and more costly. The mandatory margining rules would require that collateral be posted for many current energy contracts that are unsecured. The legislation does not include information on what would happen to existing power supply or fuel procurement derivatives, some of which are long-term commitments on the books of energy companies. Various energy industry groups are analyzing the Obama Administration's proposal, and monitoring testimony on Capitol Hill. Schiff Hardin's Energy and Public Utilities Group is doing so as well. If you would like to discuss how the proposed legislation or other legislative proposals affecting the energy markets might affect your company, please contact Patricia Dondanville or another attorney from Schiff Hardin's Energy and Public Utilities Group. ABOUT SCHIFF HARDIN LLP Energy industry stakeholders face unprecedented challenges in everyday operations as they seek to comply with changing market rules, evolving compliance obligations, and potential enforcement actions. Buying and selling energy in often difficult market conditions has become more complicated in the face of anticipated, yet undefined, climate change legislation and regulation. For the managers and general counsel of many energy companies, success in uncertain times has been the result of the counsel and representation provided by Schiff Hardin attorneys in the Energy and Public Utilities group. For more information, contact us.
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