This is part two in a three-part series on the hedging outlook for 2014. Last week, we reviewed current Fed Policy and discussed the impact on hedging programs in 2014. This week, we look at the path of derivatives regulation and the expanding role of global regulation on domestic hedging programs. Part II: Derivatives Regulation. Hedging programs in the U.S. changed monumentally over the past year. A veritable alphabet soup of regulatory requirements was heaped upon market participants, including the following: – ECP: Now all market participants must be Eligible Contract Participants (ECPs), or be qualified so by virtue of certain qualifying owners or guarantors. – LEI: Each hedging party must obtain and maintain a Legal Entity Identifier (LEI). – End-User Exception: All parties to a new transaction who are eligible to do so must now preserve the right to…

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Is the IRS out to get you? Are there unresolved questions about your eligibility or status that are preventing you from moving forward? Have you been contacted recently, only to be asked for more documentation or information? Have you had to retain legal counsel to sort through all the new requirements? If you have experienced similar problems, you are not alone. Millions of Americans are coming to terms with their own frustrating IRS experiences. Some law makers even want to advance a new IRS tax, to help pay for regulating the IRS! But let’s not get ahead of ourselves. There’s already enough going on with Interest Rate Swaps. Interest Rate Swaps have never been so simple and yet so fraught with questions and compliance issues. Many market participants are experiencing this right now as they go back into the market…

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Guide to Eligible Contract Participant Definition After October 12, 2012, only Eligible Contract Participants (“ECPs”) are permitted by law to enter into OTC derivatives transactions. Non-ECPs will no longer be able to use the line of business exemption. Eligible Contract Participants generally include: Entities with $10 million in total assets Entities with a guarantor that is an entity with $10 million in assets Entities with a net worth of at least $1 million and are hedging Individuals with “amounts invested on a discretionary basis” that exceed $10 million, or $5 million if hedging If an entity by itself does not qualify as an ECP, it may nonetheless qualify IF all of the following conditions are met: it must be entering into a swap (i.e., an interest rate, FX or commodity derivative and not a credit or equity derivative); it must…

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On April 18 the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) approved a final rule defining the terms “swap dealers,” “major swap participants,” and “eligible contract participants.” Many market participants were pleased that the regulators appeared to have listened to their concerns and defined the terms “swap dealers” and “major swap participants” in such a way that will not capture the vast majority of derivatives end users. The final rule provided less comfort to small end users, however, who may find that they will no longer be able to enter into over-the-counter derivative transactions because they do not qualify as “eligible contract participants.” – Major Swap Participants (“MSPs”): The final rule appears to be consistent with Congressional intent to focus the MSP definition on entities whose derivatives use is so material that the failure of…

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