UPDATE 3-Margin rule should focus on banks-CFTC's Gensler
* Testimony comes ahead of House ag hearing on Thursday
* Hearing to focus on cost concerns of "end users"
* Margin requirements aimed at swaps between banks-Gensler
* CFTC given "unrealistic rulemaking schedule"-CME
* Senators-avoid hurting economy with the new rules (Adds comments from senators)
WASHINGTON, Feb 9 (Reuters) - The U.S. futures regulator's long-awaited rule on margin requirements for swaps should focus on swaps between banks and not businesses using the instrument for hedging, its chairman said in testimony released on Wednesday.
Republican lawmakers at a hearing on Thursday plan to scrutinize new costs for manufacturers, farmers and other types of "end user" businesses that use derivatives to hedge their risks. The upcoming regulation on capital and margin requirements is a key concern.
The Commodity Futures Trading Commission is working on the regulation as part of its detailed and complex plan to take oversight of the swaps market, worth about $600 trillion globally. The CFTC will require many swaps to be cleared and traded on exchanges or other platforms.
In remarks prepared for the hearing and released by the House Agriculture Committee, CFTC Chairman Gary Gensler said margin requirements would be aimed at swap dealers, not end users, who are exempt from clearing requirements.
"Proposed rules on margin requirements should focus only on transactions between financial entities rather than those transactions that involve non-financial end users," Gensler said.
Gensler and other regulators also were warned this week by a group of 13 U.S. senators to move cautiously on Dodd-Frank rules to avoid hurting end users or the fragile U.S. economy.
Failing to do so "could stunt needed economic growth and produce higher costs for consumers," said the lawmakers, including Democratic Senators Max Baucus and Jon Tester and Republican Mike Johanns.
Prepared testimony: r.reuters.com/wav87r
FACTBOX-CFTC rule-making to-do list [ID:nN18195182]
Take a Look [ID:nCFTCREG]
Companies that count on using swaps are worried they will face added costs for using the contracts, either because of extra costs faced by banks -- their counterparties -- or directly from regulators.
Farmer-owned cooperatives fear they will be deemed "swap dealers" by the rules, increasing their costs and hurting their ability to offer risk-management tools to farmers, said Edward Gallagher of Dairy Farmers of America.
Ball Corp (BLL.N), a packaging company that uses swaps to hedge the price risk in turning $3 billion of aluminum into beverage cans, estimated it would have to tie up more than $400 million in margin if CFTC regulations required such a step.
"A requirement for end users like Ball Corp to post margin to its counterparties would have a serious impact on our ability to invest in and grow our business," said Scott Morrison, the company's chief financial officer, in written testimony to the committee.
Morrison urged Congress to give regulators more time to develop their rules. The Dodd-Frank law requires most to be finalized by July.
"Chairman Gensler has reached out to businesses for input on a realistic implementation timetable. That is a positive step and one that we appreciate greatly," he said.
Last month, the CFTC officially issued its proposal to prevent big speculators from distorting commodity markets. But efforts to rein in speculative limits have drawn concern from commissioners at the agency who are divided as to whether the CFTC is moving too fast or not quickly enough.
Terrence Duffy, executive chairman with CME Group (CME.O), the world's biggest futures exchange operator, said many of the CFTC proposals so far are inconsistent with the Dodd-Frank law or go beyond what it requires.
The law subjected the CFTC to an "unrealistic rulemaking schedule" that has forced it to meet "unnecessarily tight deadlines", Duffy said in prepared remarks.
As a result, the CFTC has not effectively studied the consequences of its proposals, and has failed to give those affected enough time to comment and comply.
Duffy said many CFTC proposals so far are unclear, which threatens to chill market participation by traders concerned that legitimate practices will be arbitrarily ruled unlawful.
"Indeed, the proposed rules are so unclear as to be subject to constitutional challenge," he said. (Editing by Lisa Shumaker and Dale Hudson)
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