Derivatives Reform: How Regulatory Change Will Impact U.S. Business

Posted on July 25, 2010 by Susan Mangiero

The new financial reforms that have recently been signed into law mandate further transparency and changes in how derivatives are traded and settled. With over-the-counter financial instruments now a mainstay for most corporate and government treasury departments, pensions, endowments and foundations, an understanding of what the new law does and does not address is critical for anyone involved in derivatives reporting, valuation, hedging, capital-raising, credit risk assessment and risk management advisory.  The impact of these sweeping changes could greatly affect the use of derivatives by institutional investors and their counterparty banks. The changing role of the fiduciary promises increased liability across the board. At the same time, questions about clearing, counterparty risk and collateral management become more important than ever.

If you are affected by these changes, you will want to join AICPA and Investment Governance, Inc. on July 29th, 2010 from 2:00pm – 3:30pm EST for this timely discussion about the new challenges as these unprecedented financial reforms become reality. This Infocast will address service provider due diligence, collateral management, transacting derivatives hedges and enhanced disclosure. 

John Hudson of Hudson Consulting Group LLC leads this important discussion with Attorney Matthew Kerfoot (Counsel, Dechert LLP), Mr. David Boberski (Head of OTC Research and New Product Development, CME Group) and Dr. Susan Mangiero (founder of Investment Governance, Inc.) to address:

  • How an exchanged cleared trade will differ from the current status quo with respect to collateral management and counterparty risk
  • Who is responsible for making sure that fiduciary obligations are properly discharged as relates to risk management activities by the buy side and their asset managers, respectively
  • Best practices imperatives when hiring, reviewing and possibly firing funds of funds and consultancies.

Click here to register for this timely and educational event. AICPA members will pay $65.

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What Can You Do With Five Cows? Morality Tale for Financial Reform?

Posted on June 30, 2010 by Susan Mangiero

When I am not traveling for business, I drive the back roads from my house to our company office in Shelton, CT. For those who don't know, Shelton is south of New Haven and north of New York City. While true that either city is relatively close by, I live in a somewhat rural area. Our town boasts about 20,000 people with one McDonald's, a few gas stations, some sheep, lots of deer and five cows.  I know this because I pass by a corner house on what is, for local denizens, a main road.

Ordinarily, I just scoot by, anticipating my morning expresso. However, since warm weather began, I've noticed that a handful of friendly bovines are out and about each morning, chewing, mooing and looking generally happy. Since this house is not a farm, I've been pondering of late why someone would own five cows. Do they make for good pets? Can you sell milk on the side and, if so, is the money worth the fuss? What the heck do you do with a few furry friends who are bigger than a breadbox and seldom house trained?

One of these days, I ought to stop my car and politely ask the man or woman of the house why they collect cows. Until then, I've concluded that this may be the small town version of the theater of the absurd.

That brings me to the topic of financial reform. Oh boy, where does one start? Those who pushed for strong reform are disappointed. Critics think the impending bill goes too far. According to writer Alain Sherter in "Funny Business: Why the Financial Reform Bill Has Become a Joke" (BNET.com, June 30, 2010), taxpayers are left holding the bag in more ways than one. Let us count the ways: 

  • Regulatory consensus is needed to address systemic risk
  • Behemoth financial institutions are free from arduous capital reserve requirements
  • Credit rating agencies will be studied but not immediately reformed.

Worse yet, "its passage would create a false sense of security, a hollow complacency" while it "entrenches Wall Street's control over the financial system."

Only time will tell if this sweeping "reform," destined to become the nation's law, will thwart future meltdowns. I'd much prefer to see capital market participants taking steps towards a robust risk management culture (if not in place already) and then providing transparency to interested parties about their risk mitigation (not the same as minimization) policies and procedures.

Animals and supposed strict mandates may seem warm and inviting but might end up costing a lot, generating few benefits and urging rational thinkers to ask why.

P.S. A future post will address the issue of derivatives and financial reform.

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