The Commodity Futures Trading Commission (CFTC) proposednew position limits for commodity derivatives last week, butthat proposal isn't expected to have much impact on mostcorporations that use derivatives to hedge risks. Meanwhile,companies are still waiting to learn whether U.S. bankingregulators will require derivative end users to post margin.

The CFTC's proposal to limit the number of contracts a singlefirm can hold in 28 different commodities follows a court'srejection of a previous position-limit proposal from thecommission.

Luke Zubrod, a director at Chatham Financial, downplayed theimportance of the CFTC's proposal for corporate end users, notingthat the limits involve agricultural, metals and energy contracts.“The big areas of interest rates and foreign currencies areuntouched by the position limits rules,” Zubrod said.

A company with some exposure to such commodities, like asupermarket chain that uses oil to make deliveries, “might beexposed to one of the oil contracts that shows up under thisposition limit rule, but you likely won't be exposed to that tosuch a degree that you would worry about bumping up against thoseposition limits,” he said.

The position limits could potentially affect liquidity andpricing for corporate end users that trade with an organizationsubject to the limits, Zubrod added.

Meanwhile, companies that use derivatives still have hangingover their heads the possibility that they could be subject tomargin requirements. Corporations have argued that the capital tiedup by margin requirements would weaken capital spending and couldresult in job losses.

U.S. banking regulators have been waiting for a report from aG-20 working group on margin requirements before coming out withtheir own proposal. That G-20 report, issued in September,suggested that corporate end users need not post margin.

Despite the G-20 group's position, Zubrod said it seems likelyU.S. regulators will require that corporate end-users post marginon derivatives. “What the Fed is clear about is that they don'tthink they have the authority to put a margin exemption out therefor anybody,” he said. “They did recommend a lighter touch withcorporate end users, but they did recommend that corporate endusers be subject to some sort of margin regime.

“Though I would be quite delighted to see that their re-proposedrule on margins changes their approach on end users, I thinkthey'll stay the course, and end users will still have a problem todeal with,” he said.

There have been attempts on the Hill to eliminate theprospect of a margin requirement for corporates. In June, the Houseof Representatives passed a measure, H.R. 634, that would exemptcorporate end users from margin requirements, by a vote of 411 to12.

The legislation seems to be off to a good start, but Zubrod,pictured at left, notes that at this point, “nothing is reallymoving in the Senate, let along anything connected withDodd-Frank.”

The bill passed by the House is “very politically sympatheticand consistent with Congressional intent and has received broadbipartisan support in the House,” he said. “In spite of thosethings, they're just running into the broader challenges in passinglegislation in the Senate.”

When Jacob Lew was appointed Secretary of the Treasury, he wrotea letter indicating that Congress shouldn't pass any changes onDodd-Frank, “at least until the regulatory rule-making process hasrun its course,” Zubrod said. “For the time being, theadministration and, by extension, the Democrats in the Senate havetaken an approach of not opening the door to change.”

While corporate end users have been exempted from manyDodd-Frank derivatives rules, they're likely to end up paying moreto trade derivatives as banks pass on to their corporate customers the cost ofcomplying with the new regulations. But Zubrod said it will taketime for that price impact to become evident.

“The factors involving derivative pricing come from capital andmargin requirements that become effective between now and 2019,” hesaid. “Therefore, the evolution in derivative pricing will unfoldover that same time frame.”