"There's still a lot of uncertainty and businesses are waiting to get clear guidance," said Larry Burton, executive director, Business Roundtable.
During the debate over overhauling financial regulations of the $600 trillion derivatives market that is part of the Dodd-Frank law, end users pushed for an exemption of any new requirements on derivatives. But after Dodd-Frank cleared Congress there was uncertainty in the provisions as to whether they would be exempt from a margin requirement.
"The ambiguities in Dodd-Frank and the proposed regulations could cause hundreds of American companies to take their capital and jobs somewhere else," said David Hirschmann, president and chief executive of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. "Beyond the impact this will have on businesses, the higher costs of using derivatives also hurts consumers by increasing price volatility."
John Parsons, a senior lecturer at the Massachusetts Institute of Technology, was critical of the survey's results.
The first mistake is assuming that the cash collateral requirement "is a deadweight cash flow cost to the companies" and the second is to ignore the entire purpose of the regulation.
"It’s always possible to ignore the systemwide purpose of a regulation and claim it is costly due to the burden it imposes on each transaction," he said in a blog post on Monday. "But the only sensible way to examine the net impact of the regulations is to think through the full systemwide impact. One can have a good debate about whether or not the Dodd-Frank reforms will reduce the total risk in the system, and about what contribution a collateral requirement may make. But simply ignoring the systemwide impacts is not a useful contribution to reasoned debate on the matter."
He said the "micro mistake is the delusion that absent a collateral requirement companies are able to trade derivatives at no cost to their balance sheet."
"This is plainly not true," he said. "If you don’t back up your derivative trades with a cash collateral account, then you are backing them up with a promise that you are good for it."
In the survey, a clear majority, 73 percent, said fully collateralizing their derivatives positions would likely negatively job creation, research and development, acquisitions and business investment and expansion.
A majority (68%) indicated that potentially higher costs from derivatives legislation would cause them to hedge less, an unintended consequence that could add volatility to business outcomes and the economy at large, according to the report.
Nearly half (46%) of respondents indicated that they would evaluate the ability to move offshore as a result of OTC restrictions and regulations in the United States.
"End users of derivatives had nothing to do with the financial crisis," Burton said. "These regulations broadly impact the U.S. business community, imposing a potentially costly, one-size-fits-all approach on a very diverse set of economic participants.”
The survey also showed that many firms are uncertain about whether and how they will be subjected to different requirements.
For example, nearly half of firms are unsure whether central clearing and trading requirements would apply to them (44%) or whether they will be required to post collateral for hedges that have not been centrally cleared (49%). This uncertainty explains why 50 percent of respondents are not sure whether they will be capable of disclosing the impact of Dodd-Frank on their next financial statement.
The survey was conducted using an online survey tool by the U.S. Chamber of Commerce, Business Roundtable, Chatham Financial, and the National Association of Corporate Treasurers from Nov. 3 until Jan. 7.
The analysis is based on the responses from 74 firms, 30 percent of which are members of the S&P 500. The companies that participated employ more than 2.5 million people in industries that span almost every sector of the American economy including manufacturing, healthcare, telecommunications, energy, real estate and retail.