The letter lists concerns over regulations that might limit access to customized derivatives or impose onerous collateral requirements on the American businesses that use OTC derivatives responsibly to hedge fluctuations in interest rates, foreign currency exchange rates, and commodity prices. These concerns are directed at certain proposals mandating clearing and exchange-trading for all OTC derivatives. âForcing all derivatives onto exchanges or into central clearing is not the answer,â says Bontrager.
The letter cautions that companies forced to use standardized derivatives could âface significantly increased earnings volatility and accounting complexity and may be unable to qualify for hedge accounting treatmentâ under FAS 133. Discussing the letter, Clark Maxwell, director of Chathamâs accounting consultancy, commented that, âWeâre concerned that the accounting for derivatives could become even more complicated and may discourage prudent risk management. The benefits of customizable derivative contracts that precisely hedge a companyâs risks are significant for the vast majority of end users.â
Mr. Bontrager notes, âOur hope is that in addressing the systemic risks and appropriate safeguards that need to be put in place, the ultimate impact on American businesses will not be overlooked. We believe that affordable access to customized methods of hedging is vital to companies whose investments are often dependent on their ability to manage risks and reduce uncertainty.â