OTC Derivatives

Derivatives play an important role in the capital markets and the broader economy by allowing businesses to manage and hedge risk. Companies in every state utilize derivatives as a key tool to protect against risks that are inherent to their businesses. For example, derivatives allow financial institutions to hedge their exposure to interest rate and credit risk, which helps them expand their lending and investment capabilities. Derivatives also allow farmers and ranchers to hedge the risk of commodity pricing volatility, helping to maintain stable food prices for consumers.

Title VII of the Dodd-Frank Act established a broad new regulatory regime for over-the-counter (OTC) derivatives, which is profoundly affecting the financial markets and market participants. New regulatory provisions are impacting swap dealers, asset managers and end-users, such as mutual funds, pension funds, manufacturers, energy producers, and agricultural concerns.

SIFMA believes that the Dodd-Frank Act took several important and necessary steps towards improving oversight and transparency in OTC derivatives markets, and as such, we support the implementation of appropriate regulations that do not create undue costs or unduly limit the availability of these valuable risk management tools for American businesses. With Title VII’s reforms largely in place, it is now possible to evaluate the implementation of those reforms with a view towards preserving beneficial aspects that have improved markets while minimizing those that have unnecessary and undesirable consequences. In addition, inconsistencies in the implementation of derivatives regulations, both at home and around the globe, have magnified the need for coordination among regulatory authorities.

SIFMA continues to work with the regulatory agencies responsible for implementation of derivatives regulations – CFTC, SEC, and U.S. Prudential Regulators, as well as major non-US regulators and global standard setters, when appropriate – focusing on the impact of derivatives rules and considering appropriate modifications to remedy outstanding issues that have caused undue competitive disparities, market fragmentation and barriers to entry and innovation. Addressing these issues can help promote U.S. competitiveness, job creation, and economic growth, without undercutting beneficial aspects of Title VII.

Priority issue areas include:

  • Capital and Margin Requirements for Non-Centrally Cleared Derivatives
  • Cross Border Application of Title VII and Substituted Compliance
  • CFTC/SEC Coordination and Harmonization
  • SDR/SBSDR Reporting Requirements
  • Swap Dealer/Security-Based Swap Dealer Requirements
  • CPO/CTA Regulations
  • Regulatory Treatment of Separately Managed Accounts
  • CFTC SEF/Trading Requirements

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