CFTC’s Chairman Gensler Supports Swap Rules

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According to various news sources, commercial end users who use over-the-counter derivatives called swaps to hedge business risk have criticized the rules that are currently being written by regulators.      The rules require trades be done on open platforms and to be guaranteed through a clearinghouse when possible, are mandated by the Dodd-Frank financial reform law.   

Although, the law created an exemption for commercial end users from the clearing mandate and the CFTC has said that they don’t have to post margin, the banking regulators have proposed rules that would require them to post margin, depending on their credit.  Arguably, one of the reasons for the proposal is that swaps played a central role in the financial crisis by allowing more risk to be loaded into the financial system without adequate capital to back it.     

Supporting banking regulators, CFTC’s Chairman Gary Gensler argues that the new system will be more open and competitive, which will ultimately bring down the cost of hedging transactions.    

In addition to lower transaction costs, Gensler argues that the treasurers will still be able to hedge companies’ “particularized risk” through customized transactions.

Gensler also emphasizes that the new rules will reduce systemic risk, which ultimately costs corporations by contributing to the financial crisis which lead to the recession and the ongoing weakness in the economic recovery.

However, opposing banking regulators, corporations that currently use bilateral swaps contracts with dealers to hedge commercial risk raise concerns that the new system regulators are proposing won’t be flexible enough for them to tailor the deals to fit their particular needs.

Anna Timone (195 Posts)


Comments

  1. Hi Anna, correction this is the funniest thing I read today, I love the bit about risk without capital to back it up priceless. Anna are you American or Australian if you don,t mind me asking, Chris

  2. Blackday says:

    ‘-ize-’

  3. Dotted?

  4. Blackday says:

    Crossed ;)

  5. Best mind my peas ‘n qucumbers then :P

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