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Is the Margin Exemption Valuable, After All?

As capital requirements and funding charges increase the price of derivatives transactions, end users may choose to reduce hedging costs by posting margin, even though theyre technically exempt from doing so.

By Treasury & Risk Staff | Updated on October 16, 2014
After Treasury & Risk ran a recent article on the Fed’s proposed margin rules for non-cleared derivatives transactions, we received a reader inquiry asking for further clarification. Joseph Neu of The NeuGroup, a network that promotes knowledge sharing among corporate treasurers, asked about the combined effects of the current Fed proposal and regulatory capital charges on margin-exempt swaps.

If capital requirements drive up the price of derivatives trades, will companies consider posting margin to reduce costs, even though they fought long and hard to avoid being included in the collateral rules?

To answer, we sat back down with Luke Zubrod, director of risk and regulatory advisory with Chatham Financial and a technical advisor to the Coalition for Derivatives End-Users. Luke regularly confers with U.S. Congressional staff and federal regulatory agencies including the Commodity Futures Trading Commission (CFTC) and Federal Reserve regarding derivatives regulatory matters, and frequently helps T&R suss out the details of complex derivatives regulations.

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