Section 705 of the Consolidated Appropriations Act, 2016, that was signed by President Obama on December 18, 2015, amends Section 2(h)(7)(D) of the Commodity Exchange Act and the equivalent provision in the Securities Exchange Act of 1934 that provide exemptions from swap clearing for certain affiliates of a non-financial corporation. The amendment deletes the “acting as agent” condition from those provisions that prevented them from being useful for non-financial corporations that use an affiliated central treasury unit (CTU) that is a financial entity to hedge the risks of the corporation. The amendment does add some additional conditions to the exemptions, but assuming that they can be met, Section 705 will expand the availability of exemptions from clearing for swaps executed by a CTU to hedge risks of its non-financial affiliate.

Since the final margin rules for non-cleared swaps adopted in December by the Commodity Futures Trading Commission and in October by the prudential swap regulators each contain an exemption for any swap that satisfies the criteria in Section 2(h)(7)(D) of the Commodity Exchange Act (and, in the case of the prudential regulator margin rules, for any swap that qualifies for an exception under equivalent provision in the Securities Exchange Act of 1934), the amendment in Section 705 also expands the availability of exemptions from the margin rules for affiliates of non-financial corporations.

The text of Section 705 can be found here.