Reval, a derivative risk management and hedge accounting solutions provider to over 375 publicly traded companies, delivered what may be the final testimony heard on Capitol Hill this year on the over-the-counter (OTC) derivatives market. In his testimony before the U.S. Senate Committee on Agriculture, Nutrition, and Forestry on OTC Derivatives Reform and Addressing Systemic Risk, Reval Chief Executive Officer and Co-Founder Jiro Okochi outlined key concerns for corporate end-users of derivatives and made specific recommendations that would address those concerns and aid in the long-term success of the reforms implementation.
Invited as an expert witness representing corporate end-users of OTC derivatives, Okochi joined U.S.Treasury Secretary Timothy Geithner; CME Group Executive Chairman Terrence Duffy; Intercontinental Exchange (ICE) Senior Vice President, General Counsel and Corporate Secretary Johnathan Short; The Depository Trust & Clearing Organization (DTCC) Managing Director Peter Axilrod; and JPMorgan Chase & Co. Managing Director and Head of Global Commodities Group Blythe Masters.
Although Okochi acknowledges the fact that most companies agree with the need to regulate the OTC derivative markets, he highlights key concerns for end-users facing the pending reform, including hedging issues surrounding standardization of trades and the various costs companies most likely will incur.
That even if end-users are exempted from posting margin, if Swap Dealers will be required to post capital and margin against end-user related transactions, then ultimately the Swap Dealers may in turn require their end-user clients to post margin to them, says Okochi. In such a scenario, the unintended consequence would be that end-users would have to post cash collateral to Swap Dealers instead of derivative clearing organizations, which would drive up costs anyway.
As part of its effort over the past seven months to bring about both transparency and the fair reform of the nearly $600 trillion OTC derivatives market, Reval will continue to provide guidance to members of Congress on reform issues specific to how companies use derivatives to hedge exposures to fluctuations in interest rates, currencies, and commodity prices.
Okochis testimony can be found on Revals micro site, www.savemyswaps.com, which Okochi created in June to provide an interactive destination for corporate end-users to voice their concerns with reform efforts.
D.C.