The above graph comes from the Wall Street Journal, where the excellent Damian Paletta is covering the battle over derivatives regulation. You may have heard that, in order to weaken financial reform, big financial institutions are convincing businesses in the real economy to lobby for what are called "end-user exemptions" as an exercise in corporate solidarity.
These companies argue that because their derivatives are "real" -- airlines purchasing fuel derivatives to hedge against rising oil prices, for instance -- they don't need to participate in clearinghouses and exchanges designed to deter speculation and decrease risk. But if you look at the graph, you'll see that less than one in ten derivatives are used by non-financial companies.
That's why Gary Gensler, the head of derivatives regulator the Commoddities Futures Trading Commission, doesn't want their to be any exemptions at all, and certainly doesn't want broadly drawn exemptions for "balance sheet risk" or "commercial purposes," which financial institutions can and almost certainly will argue exempts them from the new rules. While even actual "end-users" probably should use the clearing regime, if policymakers believe there is a good reason to exempt them, they should draw the exemptions to reflect the reality of these businesses' share of the market, not to reflect financial sectors' desire to act without thought for the public interest.
-- Tim Fernholz
