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More than 160 non-financial companies based in Europe (including BAE Systems, Air France and Daimler) have signed a letter to the Commissioners of the European Union to urge reconsideration of the proposals being drafted to regulate the derivatives market. The letter has been prepared by the European Association of Corporate Treasurers (EACT), a grouping of 20 national associations representing treasury and finance professionals from countries in Europe.
Non-financial companies are well established as end-users of over-the-counter (OTC) derivatives to mitigate risks (such as in currencies, interest rates and commodities) arising routinely in their business. These companies were not involved in the extreme stress and systemic risk experienced in the financial sector, in response to which legislators on both sides of the Atlantic are rightly seeking to introduce a robust regulatory framework.
The EACT and end-users are concerned by the unintended consequences of the European Commission’s proposals, which, as published, may threaten economic recovery by draining companies’ liquidity into mandatory collateralisation of contracts, reducing the amount of hedging (thereby increasing business risk) and raising costs for those prudently hedging their risks. The European Commission is evaluating its approach and preparing for an impact assessment. The EACT and end-users are encouraging consideration of how the existing, mature use of OTC derivatives can be maintained, most likely through some form of explicit recognition that the regulatory proposals are not intended to extend to non-financial companies. The EACT is committed to supporting the European Commission’s efforts.
Richard Raeburn, Chairman of the European Association of Corporate Treasurers, said: “Major non-financial companies use OTC derivatives as a safe and prudent way to manage risk. The extent of concern across Europe over the current proposals is reflected in the number and range of companies that were keen to add their names to our letter to the European Union.”
“I welcome the signs that the European Commission recognises the depth of this concern and is keen to enter into a constructive dialogue with the EACT and individual companies to fully understand the issues we are highlighting”.