In Letter to Congress, End Users Urge Flexibility in Legislation Regulating Derivatives

As the House Financial Services Committee prepares legislation regulating the OTC Derivatives markets, a coalition of end uders and trade groups has written a letter to Congress asking that the legislation preserve the ability of companies to manage their individual risk exposures by ensuring access to reasonably priced and customized over-OTC derivative products. The coalition noted that business end-users rely on OTC derivatives to manage risks including fluctuating currency exchange, interest rates, and commodity prices. By insulating companies from risk, customized OTC derivatives provide businesses with access to lower cost capital, said the groups, enabling them to grow, make new investments and retain and create new jobs.

In contrast, and without singling out any specific piece of legislation, the end-user coalition said that some reform proposals would place an extraordinary burden on end-users of derivatives in every sector of the economy, including manufacturers, energy companies, utilities, healthcare companies and commercial real estate owners and developers.

Specifically, proposals that would require all OTC derivatives used by business end-users to be centrally cleared, executed on exchanges or cash collateralized or subject end users to capital charges, would inhibit companies from using these important risk management tools in the course of everyday business operations. These proposals would increase business risk and raise costs, emphasized the end users, and are at cross purposes with the goals of lowering systemic risk and promoting economic recovery.

In order to promote U.S. competitiveness and economic growth, said the letter, policymakers must ensure that any financial services reform effort allows U.S. business to manage the risks inherent to their businesses. Access to customized derivatives helps businesses maintain operations, invest in new technologies, build new plants and retain and expand workforces.

.