By Roberta Rampton
WASHINGTON, Aug 24 (Reuters) - U.S. manufacturers are concerned that new regulations aimed at curbing risky trading of swaps by banks and other financial companies could sap the resources of the manufacturing sector as it tries to recover from recession.
Regulators' definition of 'major swaps participant' -- a key part of the new Wall Street reform law -- could pose risk for the members of the National Association of Manufacturers, the trade association said in a letter to the Commodity Futures Trading Commission.
'With the U.S. economy still in recovery mode, it is critical that any new regulations on derivatives not inadvertently harm economic growth,' said Dorothy Coleman, vice president of the group, whose members include heavyweights like Dow Chemical, Caterpillar and General Electric .
The CFTC and Securities and Exchange Commission have asked for comments in the next month on whom should be deemed a 'major swaps participant' and 'swaps dealer.'
Those entities will face additional capital and margin requirements for their over-the-counter derivatives trades, making the still-to-be-drafted rule one of the most closely watched of the dozens of regulations to be written in coming months.
The law defines major swaps participants as those with a 'substantial position' in OTC swaps markets.
Manufacturers caught in that net would either have to divert money from their business or cut back on hedging, which could lead to increased borrowing costs, NAM warned in its letter, which was posted on the CFTC's website on Tuesday. Link: http://r.reuters.com/xux86n
The finance arms of manufacturers that use swaps to manage risks related to interest rates and foreign exchange exposure should not be deemed as major swaps participants or swaps dealers, NAM said.
Under the new law, 'end users' like manufacturers that use swaps to hedge 'commercial risk' are exempt from mandatory clearing requirements, but NAM urged the CFTC to take a broad view of what that means.
'For instance, hedging in ways that are indirect or not perfect are nevertheless important means for corporate risk managers to manage balance sheets,' NAM said.
The group is also concerned swap dealers will pass on new costs to their counterparties, including manufacturers, and encouraged regulators to tailor capital charges to risks rather than using them as a means to encourage central clearing of OTC derivatives.
'If capital and margin requirements on swap dealers are too high, the clearing exemption for end-users will become uneconomic and meaningless,' NAM said.
(Editing by Steve Orlofsky)
((roberta.rampton@thomsonreuters.com; +202 898 8376; Reuters Messaging: roberta.rampton.reuters.com@reuters.net)) Keywords: FINANCIAL REGULATION/MANUFACTURERS (For help: Click 'Contact Us' in your desk top, click here or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com ; +1 646-223-5546) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WASHINGTON, Aug 24 (Reuters) - U.S. manufacturers are concerned that new regulations aimed at curbing risky trading of swaps by banks and other financial companies could sap the resources of the manufacturing sector as it tries to recover from recession.
Regulators' definition of 'major swaps participant' -- a key part of the new Wall Street reform law -- could pose risk for the members of the National Association of Manufacturers, the trade association said in a letter to the Commodity Futures Trading Commission.
'With the U.S. economy still in recovery mode, it is critical that any new regulations on derivatives not inadvertently harm economic growth,' said Dorothy Coleman, vice president of the group, whose members include heavyweights like Dow Chemical, Caterpillar and General Electric .
The CFTC and Securities and Exchange Commission have asked for comments in the next month on whom should be deemed a 'major swaps participant' and 'swaps dealer.'
Those entities will face additional capital and margin requirements for their over-the-counter derivatives trades, making the still-to-be-drafted rule one of the most closely watched of the dozens of regulations to be written in coming months.
The law defines major swaps participants as those with a 'substantial position' in OTC swaps markets.
Manufacturers caught in that net would either have to divert money from their business or cut back on hedging, which could lead to increased borrowing costs, NAM warned in its letter, which was posted on the CFTC's website on Tuesday. Link: http://r.reuters.com/xux86n
The finance arms of manufacturers that use swaps to manage risks related to interest rates and foreign exchange exposure should not be deemed as major swaps participants or swaps dealers, NAM said.
Under the new law, 'end users' like manufacturers that use swaps to hedge 'commercial risk' are exempt from mandatory clearing requirements, but NAM urged the CFTC to take a broad view of what that means.
'For instance, hedging in ways that are indirect or not perfect are nevertheless important means for corporate risk managers to manage balance sheets,' NAM said.
The group is also concerned swap dealers will pass on new costs to their counterparties, including manufacturers, and encouraged regulators to tailor capital charges to risks rather than using them as a means to encourage central clearing of OTC derivatives.
'If capital and margin requirements on swap dealers are too high, the clearing exemption for end-users will become uneconomic and meaningless,' NAM said.
(Editing by Steve Orlofsky)
((roberta.rampton@thomsonreuters.com; +202 898 8376; Reuters Messaging: roberta.rampton.reuters.com@reuters.net)) Keywords: FINANCIAL REGULATION/MANUFACTURERS (For help: Click 'Contact Us' in your desk top, click here or call 1-800-738-8377 for Reuters Products and 1-888-463-3383 for Thomson products; For client training: training.americas@thomsonreuters.com ; +1 646-223-5546) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
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