Comment Text:
As member-owners of the National Rural Utilities Cooperative Finance Corporation (CFC), our
wholly owned cooperative that provides us with financing, we encourage the CFTC to clarify in
rulemaking that CFC, as an “end user” of derivatives, is exempt from the new margining and
clearing requirements under the Dodd-Frank Act (DFA).
By way of background, CFC is a nonprofit cooperative entity created and owned by consumerowned
rural electric cooperatives (RECs). We, the RECs, established CFC in 1969 to supplement
the loan programs of the U.S. Department of Agriculture. Since that time, we have continued to
rely on CFC to provide us the financing necessary to deliver our end product – electricity – to
consumers. CFC’s loans to us enable us to provide electric power service to more than 42 million
rural Americans in 47 states.
Congress explicitly recognized that end users of over-the-counter (OTC) interest rate swaps
should be exempt from margining and clearing requirements. Under the DFA, Congress provided
electric cooperative end users a clear exemption from the margining and clearing requirements
for swaps used to mitigate our own business risks. In connection with making loans to us, CFC
also uses OTC interest rate swaps to mitigate its business risks. If new requirements are imposed
on CFC, the increased cost will undoubtedly be borne by our rural electric consumers in the form
of higher rates.
We encourage the CFTC to “look through” CFC to its REC member-owners and clarify that, as a
nonprofit lender owned and controlled by the entities exempted under the DFA, CFC is provided
a clear exemption from margining and clearing requirements for the following reasons:
• CFC is a captive nonprofit cooperative created by, and wholly owned by, electric
cooperatives;
• CFC is owned and controlled by its REC members on a “one member, one vote” basis;
• CFC uses swaps only to mitigate the commercial risk arising from lending to its electric
cooperative members; and
• CFC never uses derivatives for speculative purposes.
We strongly urge that CFC, our wholly owned and controlled financing arm, be afforded the
same exemptions as its REC member-owners from margining and clearing requirements.
Over 450 member owners of the National Rural Utilities Cooperative Finance Corporation signed this letter, signature sheets attached.
