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Confusion clouds derivatives industry amid Dodd-Frank attack

Considerable uncertainty is vexing derivatives players amid a raft of questions over the Dodd-Frank regime. The exact details of the rules pertaining to margins, trading, cross-border dealings and the Volcker rule remain ambiguous, with final rulings yet to be published. No one can predict the net cost of this new regulation but derivatives players are still quaking in their boots.

Uncertainty reigns supreme in the grand regulatory re-ordering of the US derivatives landscape, with few capable of predicting how costly, beneficial, punitive or distorting Dodd-Frank will prove. The industry is readying itself for implementation assuming the worst, ensuring any risk is on the upside. There have been plenty of reports of banks cutting loose prop trading desks, for example, in anticipation of the Volcker rule.

For many end users the impact is likely to be more limited, as regulators have where possible tried to put the burden on banks. “Most corporates don’t want to clear their OTC trades due to the collateral requirements it entails, so it will be largely business as usual for them,” says Joyce Frost, partner at Riverside Risk Advisors, a US-based consultancy.

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