More than 160 non-financial companies based in Europe including BAE Systems, SAP and Experian, have signed a letter to the commissioners of the European Union to "to preserve the ability of companies to manage their financial and market risk exposures by ensuring continued access to reasonably priced and customised over-the-counter derivative products." The letter was prepared by the European Association of Corporate Treasurers, a grouping of 20 national associations representing treasury and finance professionals from 19 countries in Europe.

Non-financial companies are well established as end-users of over the counter derivatives to mitigate risks arising routinely in their business. The EACT notes that "These companies were not involved in the extreme stress and systemic risk experienced in the financial sector, in response to which legislators on both sides of the Atlantic are rightly seeking to introduce a robust regulatory framework."

The EACT and end-users state that they are concerned at the unintended consequences of the European Commission's proposals, specifically "the intent to drive OTC derivative transactions into central clearing and onto exchanges will increase liquidity risk and funding costs through the requirement to post cash collateral, and reduce flexibility to match underlying commercial exposures."

The European Commission is evaluating its approach and preparing for an impact assessment. The EACT and end-users are trying to encourage consideration of how the existing, mature use of OTC derivatives can be maintained, most likely "through some form of explicit recognition that the regulatory proposals are not intended to extend to non-financial companies." According to the letter "If the proposed reforms currently being considered by the European Commission are not further refined to take account of the creation of liquidity risk throughout European business the adverse effect is likely to be twofold: a reduction in the amount of funds allocated to productive investment in the economy (as liquidity must be safeguarded to support uncertain future collateral calls); and less use of prudent hedging to eliminate market risks, with a resulting increase in uncertainty and volatility in the real economy of Europe." The EACT says it is committed to supporting the European Commission's efforts.

Richard Raeburn, chairman of the European Association of Corporate Treasurers, said: "Major non-financial companies use OTC derivatives as a safe and prudent way to manage risk. The extent of concern across Europe over the current proposals is reflected in the number and range of companies that were keen to add their names to our letter to the European Union."

"I welcome the signs that the European Commission recognises the depth of this concern and is keen to enter into a constructive dialogue with the EACT and individual companies to fully understand the issues we are highlighting".