US Senate backs exemptions on derivatives hedging against risk

New York: Exemptions to proposed rules that rein in the $605 trillion (Dh22.2 trillion) over-the-counter derivatives market should be based on the transaction rather than the business using a contract to hedge its risks, Senator Jack Reed said.

Reed, the Rhode Island Democrat writing Senate legislation to tighten oversight of derivatives trading, said he is considering exempting from the rules the transactions used by companies to protect against swings in prices for oil and commodities or interest rates.

"We're looking for basically an exemption that focuses on the economics of the transaction," Reed told a Consumer Federation of America conference.

"If you are hedging against the real economic risk, then that should be exempt," he added.

The House of Representatives passed legislation in December that shed more light on the over-the-counter market for derivatives contracts such as swaps, options and futures.

The measure exempts from many rules transactions with so-called end- users, businesses such as oil companies and airlines that use derivatives to hedge operational risks.