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White Papers

Derivatives & Market Risk in Infrastructure Projects
February 13, 2013
Events that began in 2008 have profoundly impacted both long-term debt markets and derivatives, but the impact on derivatives has received relatively little discussion to date. This white paper introduces six key themes that we perceive as impacting the optimal approach to managing market risk, and examines ways in which leading players are approaching them.  

6 Things Every Treasury Practitioner Should Know About Cross Currency Swaps
January 24, 2013
Complex yet fairly common financial instruments, cross currency swaps offer many advantages as hedging tools. Treasurers of multinational companies typically use cross currency swaps to manage operational interest rate and currency risks in their global businesses, or to facilitate multi-currency capital structure optimization.Because of the broad applicability of cross currency swaps, corporates from every sector employ them for risk management. But since they blend multiple components of different markets, spanning interest rate as well as foreign exchange, cross currency swaps can be daunting and complex to understand, transact and manage. In this paper, we distill the critical concepts of cross currency swaps, from why companies choose to hedge with them to how they are structured, priced and valued.  

Examining a Potential Eurozone Dissolution
January 2012
This white paper provides a thorough analysis of the risks involved in a potential Eurozone Dissolution, including the redomination risk, termination risk, procedures for the break-up, and how it affects derivatives.  

Evaluating EMIR’s Impact on the Property Sector
November 2010
This study details how the proposed EU rules on derivatives could take an estimated EUR 64.9 billion of working capital away from Europe’s real economy as property businesses risk being required to collateralize their interest rate hedges with cash. This is the main conclusion of a Chatham Financial study commissioned by the European property sector to assess the impact of the European Commission’s proposed European Market Infrastructure Regulation (EMIR).  

Best Practice Analysis of Credit Valuation Adjustment (CVA) Methodologies under ASC 820 (formerly FAS 157)
September 2010
This white paper provides a thorough analysis of the five identified CVA methods for both foreign exchange and interest rate derivatives and how each method performed during a recent 18-month period of significant market volatility. Building upon Chatham’s previous white paper that articulated how Potential Future Exposure (PFE) is the most accurate method to adjust for credit risk, this new study demonstrates that CVAs calculated using a PFE model exhibited less volatility than those calculated using any of the four current exposure methods.  

Summary of Key Issues from EU Derivatives Published Proposal
September 2010
After more than a year of incubation, the European Commission finally released a draft proposal of its derivatives legislation on September 15th, 2010. By and large, the proposal harmonizes with the U.S. Dodd-Frank bill with several notable exceptions including classification of companies into regulated and exempt entities.

The EU derivative regulation works in conjunction with several other pieces of EU legislation including the AIFM, CRD, and MiFID to form a comprehensive regulatory framework. The AIFM and the derivative regulation proposed today are still subject to final approval in the EU. While the CRD and MiFID are subject to review and potential revisions to bring them in line with the G20 spirit of more regulation for the derivatives market.

Although, the final shape and form of European derivative regulation will not be known until the end of 2012, the broad principals and outlines are in place and clients would benefit from understanding and preparing for the coming regulatory changes that could have significant impact on their business.  

Overview of OTC Derivatives Legislation
July 2010
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, an historic piece of legislation that will enact the most sweeping set of rules for the financial services industry since the 1930s. Following is a summary of one of the sections of the legislation that specifically deals with regulation of over-the-counter (OTC) derivatives. The summary is intended to be used to understand the key elements of the derivatives title and can be used as a quick reference guide for market participants.  

FASB Issues Exposure Draft Proposing Changes to Accounting for Financial Instruments and Hedge Accounting
June 2010
On May 26, 2010, the FASB issued an exposure draft detailing the Board’s proposed changes to the accounting for financial instruments. The proposed changes would significantly alter the current accounting for many financial instruments, including the application of hedge accounting. The scope of the proposed guidance covers all financial instruments, with limited exceptions in areas such as leases, equity method investments, insurance contracts, benefit plan obligations, and instruments classified in stockholders’ equity.   

Nine Improvements Needed in the Senate Agriculture/Banking OTC Derivatives Bill
April 2010
Title VII of the Wall Street Transparency and Accountability Act of 2010 (“the bill”) now reflects the merger of the bills reported out of the Senate Agriculture and Senate Banking committees. The bill relies heavily on text from Agriculture bill, which made discrete improvements upon the Senate Banking bill by offering a more clearly defined, albeit very narrow end user exemption. It also carried some features of the Senate Banking bill. The bill should be further strengthened by making nine important improvements that would recognize while implementing measures to address the problems revealed by the financial crisis, policy makers must strike an appropriate balance to ensure that the economy is not harmed.  

Rebuttal of Hedge Fund Attack on End User Concerns of OTC Reforms
October 2009
Point by point rebuttal by Chatham against a published document that attempts to persuade policymakers toward enacting legislation that would mandate central clearing for as many derivatives as possible.  

Evaluating Margin Lending Facilities in the OTC Derivatives Market
September 2009
This paper identifies and discusses the drawbacks to legislative proposals that would create margin lending facilities to help address the problems associated with requiring end users to cash collateralize their trades.   

Chatham Proposal on OTC Reform
July 2009
Chatham outlines its recommended approach for effectively regulating the OTC derivatives market in line with the objectives originally outlined in Treasury Secretary Timothy Geithner’s letter to Senate Majority Leader Harry Reid on May 13, 2009 without harming business end users, or the economy or America’s competitiveness in global markets.  

17 Reasons Why Clearing Should NOT Be Required for All OTC Derivatives
July 2009
Overviews why central clearing of OTC derivativies should not be required for businesses that don’t create systemic risk.  

Debt Valuations in Accordance with FAS 157 (ASC 820)
March 2009
Debt fair values are nothing new to financial reporting. They have been required for years as a FAS 107 footnote disclosure. More recently, with the introduction of FAS 157, fair values in general have received increased attention. However, the fundamental concepts of debt valuations have not changed.  

Interest Rate and FX Derivative Valuations in Accordance with FAS 157 (ASC 820)
April 2008 (Updated May 2009)
This paper discusses the process, methods and assumptions used to calculate valuations for interest rate and foreign exchange derivatives in accordance with the provisions of FASB ASC 820, Fair Value Measurements and Disclosures (formerly FAS 157).  

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