Yesterday morning, the Federal Reserve Board released a re-proposed rulemaking regarding “Margin Requirements for Non-cleared Swaps.” At first glance, this long awaited re-proposal seems to acknowledge what end-users like manufacturers have long held, that when derivatives are used by non-financial end-users to hedge commercial risk, manufacturers should not face the same margin or capital requirements as financial entities engaging in swaps for other purposes. However, it appears as though the Fed in the new proposal has chosen to allow the decision as to whether margin is required to remain between the manufacturer and their financial counterparty, rather than be imposed by a third-party regulator.
As a leader of the Coalition for Derivatives End-Users, the NAM has worked over the past several years to share manufacturers concerns about the potential costly burden that such margin requirements. So we are pleased that at least at first blush the Fed appears to acknowledge manufacturers’ concerns. As we dig through the full 200 page re-proposed rule we are hopeful that this rule, if finalized, could provide manufacturers the reassurance that they will not face this significant cost burden. The NAM and the Coalition will be working in the coming weeks to determine if the re-proposal addresses all of the concerns of manufacturers who use derivatives to hedge commercial risk and if additional changes to the re-proposed rule are necessary.