SEC chief accountant James Kroeker sent a letter to the chairman of the Accounting Policy Committee at the International Swaps and Derivatives Association, Dan Palomaki, explaining that the agency has asked the Financial Accounting Standards Board to review its approach to derivatives accounting regarding a change in counterparties.

Some have been concerned that the move to a central counterparty would effectively cancel the initial obligations of a derivative contract, requiring a new hedging relationship for any subsequent transactions. The SEC suggests that the original contract would, in fact, remain and no new relationship would be necessary.

Kroeker even suggested that some aspects of an OTC derivative contract, such as collateral requirements, could change without necessarily requiring a new hedging relationship

Concerns about hedge accounting have been at the forefront of derivatives regulation in recent days, with the announcement that JPMorgan lost more than $2 billion through legitimate hedging activity – which would not have fallen under the ban on proprietary trading proposed by the Volcker rule.

The research conducted indicates that these financial institutions face myriad challenges, including declining markets for pensions and life insurance, more competition from similar firms and new customer preferences and behaviors, according to Insurance Networking News.

Approximately 58 percent of participants in the European Actuarial Directors survey indicated that they expect the next two or three years to be very difficult, the news source reports.

"A sharp rise in the cost of accessing capital has been driven by escalating scarcity and a greater focus on risk. Underperforming areas of business should be fixed or removed allowing the additional capital to be more effectively utilized to exploit strengths and deliver better results," Michael Murphy, continental Europe director of Towers Watson’s Risk Consulting and Software business, told the media outlet.

In addition, 56 percent of respondents are planning on increasing the variety of investments they participate in as a result of constraints that are more lax, the media outlet reports.

Other research has indicated that adopting Solvency II will present insurers with various challenges, including a recent BearingPoint study stating that around 84 percent of regional firms are not prepared to implement the regulations. 

The Corporate Finance Survey questioned more than 150 finance professional from around the world about the largest challenges facing their use of derivatives.

Top among these concerns was reliable hedge effectiveness testing, which was cited by nearly 30 percent of respondents. Most of the respondents reported full compliance with hedge accounting standards, but the vast majority – 70 percent – still rely on spreadsheets to perform hedge effectiveness testing. Only 41 percent of these businesses made use of specifically tailored derivatives analytics platforms.

"This latest research further affirms the difficulty corporate treasuries have been facing with regards to hedge effectiveness testing," Gurpreet Banwait, director of insight solutions product management at FINCAD, said in a statement. "While spreadsheets are a pervasive tool, they do not offer an easy to use solution for hedge accounting. Treasuries need simple and reliable solutions to comply with hedge accounting standards without dealing with the operational issues that accompany spreadsheets."

Risk assessment ranked as the second-most-common concern for respondents, while only 2 percent expected new derivatives regulation to have a major impact on their businesses.

Market participants and government regulators have been roiled by news of the bank's recent disclosure that it lost $2 billion as a result of derivatives trades. The substantial loss was a result of the company's chief investment office making trades that chief executive Jamie Dimon has referred to as "sloppy" and "flawed," The New York Times reports.

Securities and Exchange Commission Chairman Mary L. Schapiro recently announced that the government agency she heads has been looking into the trading activities of the bank, according to the media outlet. 

The SEC has already started investigating the whether JPMorgan Chase was guilty of violating the law through its public statements and documents, sources familiar with the matter told the media outlet.

Schapiro recently told reporters that regulators are "focused" on the loss incurred by the major bank, USA Today reports. When asked about the incident by members of the media who were present, she declined to comment. 

At a general meeting of the ICI, he stated that in the current investing climate that "it’s difficult to meet that promise efficiently without using options, futures, swaps, and other derivatives," according to On Wall Street. "Funds use these tools to manage risks; to invest more efficiently; and to gain investment exposures to stocks in some foreign markets that are difficult or costly to access directly."

The market expert stated that people who own shares in mutual funds benefit from asset managers that utilize derivatives to provide investors with exposure to a broad basket of commodities – which can involve goods ranging from agricultural products to energy to precious metals such as gold and silver, the media outlet reports.

The size of the derivatives market has grown over the last decade, with recent estimates putting the size of the OTC derivatives market alone at $650 trillion. 

Only 16 percent of the the region's insurers are ready to produce the required quarterly and annual reports that are being demanded by the regulatory bodies of the European Union. While significant effort has been devoted to preparing for Pillar 1 of Solvency II, which involves accumulating the needed capital reserves, as well as the risk management concerns involved in Pillar 2, very little time has been invested into the reporting concerns of Pillar 3.

In addition to these findings, the survey discovered that around 40 percent of respondents do not understand the intricacy that will be involved in complying with the new reporting requirements. More than 60 percent of those polled intend to figure out their reporting procedures within the next several months.

"Reporting is still a low priority. So far, insurers have not fully recognised the added value of a Pillar 3 analysis," Patrick Maeder, head of BearingPoint’s Insurance Segment, said in the statement. 

The government officials also decided to postpone a vote on a regulation that would require at least 85 percent of a contract's trading to be executed using an exchange's centralized market, according to Reuters.

The agency commissioners voted to postpone for six months the implementation of new rules that affect derivatives contracts such as credit default swaps and interest rate swaps. The regulations involved in the agency decision involved certain provisions of the Commodity Exchange Act that were originally scheduled to be implemented on July 16, 2011, which was the general effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The provisions that have been pushed back have lost some of their impact since certain regulations, for example the definition of major swap participant and swap dealer, have become effective. The CFTC vote moved the effective date for the new rules to December 31, 2012. 

The first of these numbers to be released by the head of the WMBA will determine what margin requirements regulators impose on clearing houses, and the second figure will involve the amount of capital that banks will need to post for derivatives contracts that have not been cleared, according to the media outlet. 

Once determined, these crucial figures will increase transaction costs for dealers and potentially exclude smaller market players from making these trades, the news source reports. Market experts have already warned that a poorly-constructed pricing structure will be very problematic for the industry, and regulators have stated that they will probably not have a final version ready for January 1.

"There are so many permutations. I do not think setting these rules can take account of all of these things and that would also get into a level of detail that is not likely to be productive," one G20 source told the media outlet.

Data recently provided by the Bank for International Settlements indicates that the notional value of OTC derivatives contracts declined by 10 percent during the last half of 2011. 

The BIS stated that the value of these off-exchange contracts declined to $647.76 trillion by the end of 2011, down from $706.88 trillion at the end of June, according to Dow Jones Newswires. This shift was largely caused by flagging interest in derivatives contracts based on equity securities, interest rate swaps and credit default swaps.

The gross market value of outstanding contracts rose by around 35 percent during this period to reach $27.29 billion, the media outlet reports. The major contributor to this sharp increase was changing contract values for interest rate swaps, which composed nearly 75 percent of all OTC derivatives contracts. The rise in gross market value during the last half of the year was the largest increase since the final six months of 2008.

In addition to declining notional values for OTC derivatives, trading of these contracts plunged 20 percent in 2011, according to survey data recently provided by the the International Swaps and Derivatives Association. 

The poll found that a meager 24 percent of respondents believe that the capital requirements for insurers will be adopted using the timeline that was originally established, according to Insurance Insight.

Post Online reports that of the 39 participants in the poll, around 55 percent indicated that their Own Risk Solvency Assessment (ORSA) was being executed behind schedule, and 87 percent said that they will prioritize completing this task and performing their ORSA.

Almost-three-quarters, or 71 percent of respondents, said that they have been encountering challenges in putting the ORSA into corporate policies, according to Insurance Insight.

Kim Durniat, an associate at Barnett Waddingham, stated that "whilst we can see that firms are progressing with the quantitative aspects of Solvency II, it is essential that firms consider more closely what Solvency II means for their business," the media outlet reports. "Insurance companies need to review their approach to capital management" by reviewing such concerns as their investment strategy.