NCUA Eyes Derivatives Powers For CUs

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ALEXANDRIA, Va. – The NCUA Board this morning issued a proposal for comment that could lead to broader use of financial derivatives for credit unions to hedge interest rate risk, beyond the limited number of credit unions now authorized to use the instruments.

Currently only a handful of natural person credit unions are authorized by NCUA to trade in derivatives, like swaps, options and futures with strict oversight by NCUA. NCUA has been reluctant to authorize broad use of derivatives because of the potential for their use in speculation and the volatility that often encompasses the derivatives markets.

The agency is seeking input on a wide range of issues, including whether credit unions should be able to trade in financial derivatives absent third-party, like a broker-dealer? what kind of criteria should NCUA consider in approving trading in derivatives? and what kind of preparations should be required for derivatives trading?

The derivatives proposal was issued for a 60-day comment period.

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