WASHINGTON - A collective of business trade groups on Wednesday warned of potential risks for end users of margin requirements mandated under the Dodd-Frank Act.
The Coalition for Derivatives End Users said the vast majority of companies responding to a recent survey conducted by the alliance worry the rules could adversely impact how they hedge risks. End users are non-financial companies, such as farmers and manufacturers, which use over-the-counter derivatives to hedge interest rate, currency and commodity price risks.
"Today's survey results clearly demonstrate the devastating impact margin requirements will have on companies from virtually every sector of our economy," said Michael Bopp, counsel to the Coalition for Derivatives End-Users, in a press release.
It is unclear whether banking regulators will ultimately include non-financial end-users in final regulations implementing the Dodd-Frank margining requirements for swaps participants. (The bank regulators and other agencies issued a proposal in 2011.) The international Basel III capital framework completed this summer had excluded such end-users from similar requirements.
Lawmakers have already come to the end-users' defense. Legislation proposed by Reps. Michael Grimm, R-N.Y., and Gary Peters, D-Mich., which would exempt end-users from margin requirements, passed the House with a vote of 411-12 in May. A companion bill backed by Sens. Mike Johanns, R-Neb., and Jon Tester, D-Mont., is pending in the Senate.
"Imposing costly margin requirements on end users is an example of something that was never really intended by Dodd-Frank," Johanns said at a press briefing Wednesday.
The coalition surveyed 43 chief financial officers or corporate treasurers at public and private companies across a variety of industries.
Among its findings, the survey revealed that 86% of respondents are concerned that the rule could impact business investment and other activities, and 91% of companies reported a margin requirement will lead to a change in how they manage risk. Two-thirds of those surveyed predicted the provision could have a moderate or significant impact on capital spending.