WASHINGTON (2/7/11)--The Securities and Exchange Commission’s (SEC) proposal to exempt credit unions with under $10 billion in assets from mandatory securities-based swaps clearing requirements has the backing of the Credit Union National Association (CUNA), but CUNA would like it to go even further. Without the exemption, credit unions could be effectively prohibited from hedging risk using over-the-counter options or other derivatives when a security, such as a bond, is the underlying asset. The Dodd-Frank Act gives the SEC the leeway to consider exemptions from the swap requirements, but the SEC is not required to exempt any financial institution from the requirements. Federal credit unions are allowed to enter into some types of over-the-counter agreements, which would meet the definition of “security-based swaps,” and some state credit unions have this authority as well. Credit unions would therefore be disadvantaged if the end-user exemption is not expanded to include credit unions, CUNA said in a comment letter sent Friday to the SEC. CUNA added that the proposed $10 billion exemption threshold should not be lowered, and added that the SEC should consider using a different exemption criteria, if possible. CUNA suggested that credit unions be covered by the proposed rule only if they have at least $10 billion in assets and transact significant volumes of securities-based swaps. The SEC proposal seeks to limit the types of risky investments that some have said lead to the recent financial crisis. However, CUNA noted that, in the few and restricted instances where credit unions may make investments in swaps and other forms of derivatives, such investments rarely pose a risk to credit unions due to the comprehensive nature of existing National Credit Union Administration derivatives rules. Those rules generally prevent federal credit unions from investing in derivatives except for certain options used to hedge risk on bonds and retail products tied to an equity index, and to hedge interest rate risk. For the full comment letter, use the resource link.