CFTC’s Gensler tells treasurer group derivative rules will benefit corporates even if they don’t apply.
CFTC Chairman Gary Gensler Thursday sought to convince US corporate treasures that they will benefit from Dodd-Frank derivative rules – even if the rules don’t apply to them. He also again emphasized that non-financial companies would be exempt from central clearing.
Speaking before perhaps one of his more skeptical audiences, Mr. Gensler’s speech to the National Association of Corporate Treasurers was partly informative but mostly a sales pitch as he attempted to convince treasurers that new central trading platforms were not scary mechanisms that will only increase the cost of doing business. In fact, he said, the new rules will create competition, thereby reducing costs.
“A … benefit that reform will bring to the economy and you in your roles as corporate treasurers is making the swaps marketplace more transparent, open and competitive,” the Commodity Futures Trading Commission chairman said. “This reform will bring real, tangible benefits to the corporations that you represent.”
Mr. Gensler said pre-trade and post-trade transparency, which will be possible by standardized swaps trading on exchanges or swap execution facilities (SEFs), will create an open and competitive central market. “Even if you, as corporate treasurers of nonfinancial entities, decide not to use exchanges or SEFs for your swaps transactions – because the Dodd-Frank Act says that you are not required to do so – you still will benefit from the transparent pricing and liquidity that such trading venues provide,” Mr. Gensler said.
Mr. Gensler added – reasoned – that because corporations using derivatives are essentially “paying for a service to reduce your risk” the market will then be flooded with companies “competing for that business. You want them to compete in a transparent marketplace where you will benefit from better pricing,” he said.
In closing, Mr. Gensler reiterated what Dodd-Frank won’t require of US corporations, specifically that non-financial end-users using swaps to hedge or mitigate commercial risk will not be required to bring their swaps into central clearing. Nor will corporate end-users be required to post margin for their uncleared swaps. Finally, he said, Dodd-Frank “maintains your ability to enter into bilateral swap contracts with swap dealers.”
Despite these assurances, in terms of margin, treasurers still need to keep an eye on other prudential regulators, who may see fit to require margin regardless of what the CFTC says (see related story here).