Search
 

Will Dodd-Frank Alter Corporate Hedging?

As dealers pass new costs on to end users, companies could decide to change the way they hedge.

By Susan Kelly | Updated on March 20, 2013
As Congress enacted the Dodd-Frank Act of 2010 and regulators wrote rules to implement the changes it mandated in over-the-counter derivatives trading, companies have been lobbying long and hard to protect their ability to use such derivatives to hedge their risks. And while they won the battle, they may have lost the war.

As the Dodd-Frank rules and other regulatory changes take effect for dealers, the cost of using OTC derivatives is expected to rise, a development that could push corporates to alter the way they hedge in spite of the exemption they won from many Dodd-Frank rules.

Traditionally, corporates have gone directly to their dealers—their banks—to put on over-the-counter (OTC) trades to hedge such exposures as foreign-exchange and interest-rate risk. Such bilateral trades with dealers usually weren’t cleared. Companies use OTC derivatives rather than exchange-traded products because one of their key goals is to achieve a structure that closely replicates the time frame and cash flows of the risk being hedged so that the derivative transaction qualifies for hedge accounting.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.

Already have an account?

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Recommended Stories

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2024 ALM Global, LLC. All Rights Reserved.