June 1, 2017 The Honorable Steven Mnuchin Secretary U.S. Department of the Treasury 1500 Pennsylvania Avenue, NW Washington, D.C. 20220 Re: Executive Order 13772: Core Principles for Regulating the United States Financial System Dear Secretary Mnuchin: The Coalition for Derivatives End-Users (“Coalition”) is pleased to submit this letter in support of the core principles enumerated in Executive Order 13772, titled “Core Principles for Regulating the United States Financial System” (“Executive Order”).1 As discussed below, the Coalition believes that the U.S. Department of the Treasury (“Treasury”) should advocate for and/or help implement legislative, regulatory, and other administrative solutions that advance the core principles and that will remove barriers to raising capital and market liquidity in the United States. I. THE COALITION FOR DERIVATIVES END-USERS The Coalition represents commercial end-user companies that employ derivatives and derivatives strategies primarily to manage risks, enhance their competitiveness, and provide stable pricing to their customers. Hundreds of companies and industry trade associations have been active in the Coalition on both legislative and regulatory matters,2 and our message is straightforward: financial regulatory reform measures should promote economic stability and transparency without imposing undue burdens on commercial end-users, which are the engines of the U.S. economy. Imposing unnecessary regulation on commercial end-users—parties that did not contribute to the 2008-2009 financial crisis—would fuel economic instability, restrict job growth, decrease productive investment, and hamper U.S. competitiveness in the global economy. For commercial end-users, to hedge is to promote the efficient and less risky functioning of their business. The alternative (i.e., not hedging) would create unacceptable levels of commercial risks. For example, U.S. commercial end-users engaging in significant sales of U.S. products overseas will need to account for currency exchange risks. Revenue generated by these sales has the potential to amount to serious losses should the price of foreign currency change in relation to the 1 President Donald J. Trump, Executive Order 13772: Core Principles for Regulating the United States Financial System, 82 Fed. Reg. 9965 (Feb. 3, 2017), available at https://www.whitehouse.gov/the-press- office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states [herein after the “Executive Order”]. 2 For a list of companies and trade associations that have been active in the Coalition, please see http://coalitionforderivativesendusers.com/AboutUs/coalition-members. Hon. Steven Mnuchin June 1, 2017 Page 2 U.S. dollar. Derivatives hedges help to stabilize price fluctuation by locking in predetermined prices, thus freeing up capital that would otherwise need to be stockpiled as a cushion against unexpected market volatility. The use of derivatives to hedge commercial risk benefits the global economy by allowing a range of businesses—from manufacturing to healthcare to agriculture to energy to technology—to improve their financial planning and forecasting, offer more stable prices to consumers, and contribute to more stable economic growth. Duplicative, inefficient, and overtaxing regulations that are imposed on financial institutions— which are often the counterparties to commercial end-users for their derivatives transactions— have the tangible effect of increasing costs for commercial end-user derivatives transactions, reducing market liquidity, and restricting end-users’ ability to obtain financing necessary for short- term operations and long-term growth of their businesses. The increased costs, which are passed on to U.S. businesses by regulated financial institutions, along with restrictions on financial institutions to engage in market making activities, effectively reduces available capital and prevents end-users from reinvesting in the growth of their businesses and establishing new jobs for American workers. Therefore, the Coalition believes it is important that U.S. regulatory policy consider the comprehensive impacts that the full suite of financial regulations can have on commercial end- users’ opportunities to effectively and cost-efficiently manage their exposures to volatile market risks and access the capital markets. In doing so, U.S. regulatory policy will be better aligned with the goal of achieving sustainable U.S. growth. II. THE CORE PRINCIPLES OF THE EXECUTIVE ORDER The Coalition supports the seven core principles espoused in the Executive Order (the “Core Principles”), which are designed to encourage U.S. economic growth and mitigate risks to the U.S. financial system. The Coalition also supports the Executive Order’s directive to examine and report to the President whether any “existing U.S. laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies that inhibit Federal regulation of the U.S. financial system in a manner consistent with those [C]ore [P]rinciples.”3 We believe that it is appropriate to reexamine the financial regulatory reform measures that were enacted and issued in response to the 2008-2009 financial crisis, and to determine whether they are promoting economic growth or are instead imposing unnecessary complexity and undue hardships on U.S. businesses. In furtherance of the Executive Order’s stated purpose, we have identified several “laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies,” that we believe are inconsistent with the Core Principles.4 In addition, we propose legislative, regulatory, and other policy reforms that would directly complement and address the Core 3 Executive Order, Sec. 2. 4 Id. 2 Hon. Steven Mnuchin June 1, 2017 Page 3 Principles.5 In particular, we note that the proposals we discuss in this letter would support and promote the Core Principles by: 1. Empowering Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth by ensuring that commercial end-users can pass on cost savings to American consumers; 2. Preventing taxpayer-funded bailouts by appropriately balancing the needs for bank capital requirements sufficient to weather financial market crises and commercial end-user access to affordable risk-mitigation solutions; 3. Fostering economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry, by directly studying the cumulative economic impacts of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”) and other financial regulations on both capital-raising activities of U.S. commercial end-users and market-wide liquidity in the U.S.;6 4. Enabling [U.S. commercial end-users] to be competitive with foreign firms in domestic and foreign markets by addressing and removing the regulatory disparities that currently benefit foreign businesses over U.S. businesses; 5. Advancing American interests in international financial regulatory negotiations and meetings by advocating for U.S. business interests in connection with foreign matters (e.g., “Brexit”) and focusing on international harmonization; 6. Making regulations efficient, effective, and appropriately tailored by recognizing the unique role that commercial end-users play in the U.S. economy and ensuring that commercial end-users are not unduly burdened by such regulations; and 7. Restoring public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework by ensuring that regulations deepen market liquidity, protect and encourage capital raising, and ultimately provide benefits to U.S. businesses and American consumers.7 The Coalition respectfully requests that Treasury (in coordination with the member agencies of the Financial Stability Oversight Council) consider and support the legislative, regulatory, and other policy reforms discussed in the sections below, which we believe are necessary to help enable end- users to effectively manage risks, remove barriers to raising capital, strengthen U.S. businesses, and grow our economy. 5 Id. 6 Pub. L. 111-203, 124 Stat. 1376 (2010). 7 Executive Order, Sec. 1. 3 Hon. Steven Mnuchin June 1, 2017 Page 4 III. LEGISLATIVE INITIATIVES Despite congressional efforts to provide end-users with relief from some of the costliest regulations promulgated under Title VII of Dodd-Frank, commercial end-users still face significant burdens in seeking to comply with some Dodd-Frank rules. In addition, U.S. prudential regulators8 also have issued rules that increase costs for commercial end-users’ derivatives activities. The cumulative effects of these burdens and costs have threatened the ability of American businesses to affordably protect against risks associated with their commercial operations. While the U.S. Commodity Futures Trading Commission (“CFTC”), the U.S. Securities and Exchange Commission (“SEC”), and the U.S. prudential regulators have implemented important reforms to better protect commercial end-users and the derivatives markets generally, the implementation of many of these new rules have had the unintended consequences of constricting American business investment, acquisitions, research and development, and job creation.9 Seeking relief from many of these unintended consequences, commercial