Le magazine du trésorier - n°67 - 3ème trimestre 2009 - (Page 36)

TREASURERS’ ASSOCIATIONS Reforming OTC Derivatives, a new challenge for Corporate Treasurers NEW REGULATION FOR OTC DERIVATIVES? The Obama Administration has announced in June 2009 a sweeping reform of the financial markets, including a brand new approach of the OTC (Over-The-Counter) derivative markets (“Financial Regulatory R: A New Foundation” published on June 17, 2009). In the meanwhile, the European Commission has issued a “Consultation document on possible initiatives to enhance the resilience of OTC Derivatives Markets” (Brussels – Commission staff working paper 3/7/9 SEC 2009- 914 / “Ensuring efficient, safe and sound derivatives markets” – COM 2009332). Some corporate treasury associations (e.g. AFP and ACT) and IT service providers (e.g. REVAL – see: www.savemyswaps.com) have already expressed their views on such a radical change on the way derivative products in a broad sense are dealt and negotiated. Beside these initiatives other corporate treasurer groups or specialized institutions, like Greenwich Associates, have launched surveys about this planned reform. EACT has addressed its concerns and main issues about a reform which does not consider how it would affect the corporate users of financial markets. The major issue with this reform is the scope it includes. It does not only cover the trading of CDS and CDOs but also the plain vanilla hedging instruments (e.g. IRS, currency swaps, etc…). We will be all impacted by such a reform. The aim is to apply new rules to all derivatives, no matter what type of them is traded or priced, regardless of whether they are standardized or customized and it also includes the derivatives to be invented in future. There are no exceptions for simplifying the rules application. Are the “standard and classical” OTC products victims of the excesses of a bunch of them (e.g. CDS and CDOs)? In general, the companies use derivatives to reduce exposures and risks and not to trade speculatively. persons will penalize the whole derivative user community. The misuses of couple of sophisticated and complex instruments by traders, together with the weakness of controls by regulators and supervision bodies will eventually impact the vast majority of the users. The cost for repairing the damage to financial system is extremely high. ALTERNATIVE SOLUTIONS To avoid some of the impacts for treasurers and not to be counterproductive, few financial professional organisations and service providers have recommended excluding the derivatives (as defined under IAS 39 definition) which qualify for hedge accounting treatment under FAS 133 or IAS 39 from the regulatory reform envisaged.According to Jiro Okochi from REVAL it could even help encouraging sound risk management, promoting transparency and reducing costs and administrative burden. The financial instruments accounting standards (i.e. IAS 39 and FAS 133) were implemented in order to make sure corporations that speculate using derivatives will book changes in fair value of hedging instruments into profit & loss statement.The aim was to improve transparency and to better reflect the financial reality of operations formerly booked offbalance sheet.The corporations that use basic hedge accounting qualified instruments would be penalized by the generalisation of rules to all derivatives. The obvious consequence of the current accounting rules was to enable end-users of derivatives that have deployed fairly conservative hedging strategies to DIRECT IMPACT FOR CORPORATE TREASURERS The direct impact for corporate end-users (i.e. treasurers) is obviously the increase of cost of hedging because of margining system, the increased P&L volatility given potential ineffective hedging strategies and unwanted transparency on hedging strategies applied. The OTC reform would lead to higher costs and therefore to increased borrowing and possibly to additional capital requirements. The use of derivative products is essential and legitimate for a sound risk management.They are aimed to stabilize prices and mitigate risks. More transparency is certainly a recommended and praiseworthy goal, which can prevent future systemic risks. However, we do not want to negatively impact basic plain vanilla products which use could become ultimately impossible. Some treasurers in the USA are concerned by the conflict between mandatory contract rules and US GAAP (i.e. FAS 133) and ability to demonstrate hedge effectiveness (see: www.afponline.org ). As always, the excesses from a limited number of http://www.savemyswaps.com http://www.afponline.org

Table des matières de la publication Le magazine du trésorier - n°67 - 3ème trimestre 2009

Couverture
Sommaire
EDITORIAL
- Treasury Got Talent
FINANCIAL HIGHLIGHTS
- Luxembourg News
INTERVIEW
- Mrs. Barbara Ridpath, Chief Executive of the International Centre for Financial Regulation (ICFR)
FOCUS
- The Necessary Evolution of German Conglomerates As a Result of the Crisis
- Plan Contingent pour le Département de Trésorerie
FORUM OF ADVERTISERS
- Using Technology to Achieve Financial Risk Visibility
- How CFOs can strengthen their roles as business partners in times of crisis
- Comment renforcer son modèle économique pour préparer la reprise ?
- Vers une reprise durable ?
- 15 minutes with… Mr. Stéphan Caro - Misys
TREASURERS’ ASSOCIATIONS
- SEPA risks failure unless corrections are made, say end users
- Partenariat conclu entre l’ATEL et CFO World
- Reforming OTC Derivatives, a new challenge for Corporate Treasurers
- How Borrowing Conditions are Affecting European Business
NEWS

Le magazine du trésorier - n°67 - 3ème trimestre 2009