Hedge Accounting And OTC Derivatives Legislation

Law360, New York (September 18, 2009, 1:45 PM EDT) -- On August 11, the Obama administration proposed new legislation (the “legislation”), which promotes the standardization of most over-the-counter derivatives products (“regulated derivatives”).[1] The legislation also provides for substantial new regulation for dealers in regulated derivatives and for large end-users[2] that hold “substantial net positions” in these instruments.

One of the striking features of the legislation is the endorsement it gives to derivatives strategies that qualify for hedge accounting under generally accepted accounting principles to the exclusion of all other uses of derivatives.

As discussed below, this...
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