Companies who use over-the-counter (OTC) derivatives to hedge interest rate, foreign exchange and commodity risks associated with their day-to-day businesses can find and share information at savemyswaps.com, a microsite launched today by Reval, a global derivative risk management and hedge accounting solutions provider for some of the world's largest and most complex organizations and Big 4 advisory firms.
The new site is designed to provide a platform where corporate end-users of non-standard derivatives can contribute information and opinions that will support a drive to limit the impact of the Obama administration's proposed financial regulatory reform on these types of derivative instruments. Visitors to the site will participate in a survey, the results of which will be shared with the administration and with participants.
Among the industry positions, comments and government information provided on the site is a letter to Treasury Secretary Timothy F. Geithner, in which Reval CEO and Co-Founder Jiro Okochi proposes that "OTC derivatives that qualify for hedge accounting treatment under FAS 133 or IAS 39 be exempt from the regulatory reform being proposed and from the requirements for clearing or margining."
According to Okochi, "Exempting OTC derivatives that qualify for hedge accounting under existing standards will aid reform efforts by encouraging risk management, eliminating potential loopholes, promoting transparency, and eliminating the time and expense of designating trades as either standardized or non-standardized." Hedge accounting is an accounting rule (FAS 133, or IAS 39 outside the U.S.) that helps companies avoid earnings volatility when using derivatives to hedge business risk. Under this rule, companies do not have to show losses or gains on their income statements because the underlying assets or liabilities of the hedge match, offsetting any losses or gains. In order for a derivative contract to qualify for this rule, companies need to show how the hedge matches, proving it is "effective."
Reval's position on the proposed reform of the OTC derivatives market is, in part, that it "understands and agrees with the need to better regulate the over-the-counter (OTC) derivatives market, and that better transparency, controls and the ability to clear OTC derivatives would help prevent future systemic risk. However, the broadd regulatory reform suggested for all OTC derivatives-despite their intended use-may in fact increase risk into the system."