Dodd-Frank end-user exemption at risk?
CNBC suggests that companies are a bit worried about recent statements by CFTC chairman Gary Gensler that indicated he believes Dodd-Frank grants the authority for the CFTC to impose margin requirements on end-user transactions. Recall that the issue was a big one in the run-up to Dodd-Frank's passage. Lawmakers wanted to crack down on derivatives trading abuse in part by requiring more capital to back trades. The crackdown was meant for Wall Street and big speculators.
As for legitimate hedgers, all agreed that there should be exemptions. Lots of companies across the economy hedge in the markets--interest rate risk, currency risks, of course commodity risk. So for most companies, this end-user exemption was a good thing. But is it unraveling, given Gensler's comments? I doubt we'll see a move to make such hedging more difficult for companies. But the idea is worth extra thought.
There have been plenty of companies that have gotten into trouble with hedges that have gone wrong. At some point, the hedges get large enough that they could result in significant losses. While higher collateral may not be the best idea, companies do need to think about better risk management in this area.
- here's the article