The new FinReg legislation (or the Dodd–Frank Wall Street Reform and Consumer Protection Act) places new responsibilities on non-financial commercial users of swaps. All swaps have to be margined except those that have an "end user exemption". If the hedging company is publicly traded, there has to be an official committee that reviews swap transactions. Even non-public companies will have to show what they are hedging and why they are hedging.
The dealer bank may have to keep such documentation on file if they aren't charging variation margin. The dealer bank and corporate hedger will both have to notify the CFTC regarding the collateral used to secure the swap. The law is vague, and the banks/dealers are lobbying the CFTC to get the regulations written in their favor.
One fear discussed by dealers is that CFTC might accuse a bank of "price gouging" if they see that they routinely mark up captive swaps excessively and ''improper risk taking' if the spread on the swaps is too low. There is the fear that the bank might have to show that variation margin on the swap is covered by the collateral (albeit illiquid). That's why banks might just prefer to charge variation margin on even their captive customers and try to figure out some way to fund it.
Again, this is all now in the discussion stage and some are considered worst case outcomes. In fact, JPMorgan just has recently announced the closing of their proprietary trading desk in order to meet the requirements of the FinReg's new Volcker Rule.
The dealer bank may have to keep such documentation on file if they aren't charging variation margin. The dealer bank and corporate hedger will both have to notify the CFTC regarding the collateral used to secure the swap. The law is vague, and the banks/dealers are lobbying the CFTC to get the regulations written in their favor.
One fear discussed by dealers is that CFTC might accuse a bank of "price gouging" if they see that they routinely mark up captive swaps excessively and ''improper risk taking' if the spread on the swaps is too low. There is the fear that the bank might have to show that variation margin on the swap is covered by the collateral (albeit illiquid). That's why banks might just prefer to charge variation margin on even their captive customers and try to figure out some way to fund it.
Again, this is all now in the discussion stage and some are considered worst case outcomes. In fact, JPMorgan just has recently announced the closing of their proprietary trading desk in order to meet the requirements of the FinReg's new Volcker Rule.