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60 Percent of Derivatives Users Unprepared for Dodd Frank and EMIR —Study

The vast majority of corporate end users of derivatives are underprepared for compliance with both rule sets due to regulatory uncertainty, over cross-border swaps, according to a survey by Chatham Financial.

Sixty percent of derivatives end-users who face regulatory requirements from Dodd-Frank are not yet prepared for compliance, according to a recent survey of 156 end-users from derivatives advisory firm Chatham Financial.

The survey found that the vast majority of end users facing compliance requirements from Dodd Frank and EMIR are underprepared to meet obligations for both sets of rules.

Among a sampling of more than 150 companies, 60 percent of respondents who face regulatory requirements from Dodd-Frank indicated that they are not yet prepared for compliance, with nearly three-quarters (74 percent) of end-users facing EMIR compliance stating that they were not fully prepared.

The results point to the impact of regulatory uncertainty among end users - 60 percent of which utilize cross-border swaps to mitigate risk within their company, according to Chatham Financial.

Under current regulations, companies with subsidiaries in different countries that enter into derivatives transactions with each other may be subject to two sets of rules. The lack of clarity surrounding the issue is clear; 44 percent of those surveyed indicated they were unsure of their status under EMIR. Of companies that were aware they faced EMIR requirements, nearly three-quarters (74 percent) said they were not yet prepared for compliance.

“Right now, as many firms are working toward complying with their home country regulations, they’re just beginning to scratch the surface of additional regulations stemming from the jurisdictions of their counterparties,” said Luke Zubrod, director at Chatham Financial in the company’s release “This means additional cost, confusion and uncertainty – the very factors end users enter into derivatives to avoid.”

When asked how increased OTC derivatives pricing would affect hedging behavior:

• Thirteen percent of respondents said that they expect to hedge less or stop hedging altogether

• Nearly half (47 percent) plan to simply pay the higher prices

• Forty percent stated they would seek alternative means to manage risk

• Separately, just 22 percent of end-users said they were definitely considering voluntarily clearing their derivatives or using exchange-traded products such as futures The survey is based on a poll of 156 treasury and risk management officials of U.S. and Europe-based firms that utilize derivatives in their risk management activities. The survey was conducted during a recent webinar hosted by Chatham Financial, the European Association of Corporate Treasurers, and the National Association of Corporate Treasurers.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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