House OKs Margin Exemption

Even if measure becomes law, corporate end users of derivatives could face higher costs.

The U.S. House of Representatives passed a bill this week that exempts corporate end users of derivatives from margin requirements. End users are still likely to face higher costs for uncleared swaps, though, depending on how other Dodd-Frank Act proposals pan out.

The measure, H.R. 2779, sponsored by Reps. Steve Stivers (R-Ohio) and Marcia Fudge (D-Ohio), was approved March 26 on a 370-24 vote. The exemption was removed at the eleventh hour from Dodd-Frank, which has been interpreted by banking regulators as requiring margin for some end users.

Even if the exemption is signed into law, however, companies accustomed to tailoring OTC swaps to their specific hedging needs may find themselves facing higher costs. Jiro Okochi, CEO of Reval a treasury and risk management software provider, says swap dealers may still want to collect margin for uncleared trades to lower their capital charges or may charge more through additional fees or a wider bid-ask spread.

“What remains to be seen is how severe requirements will be on banks,” Okochi says.

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