The Dodd-Frank Wall Street Reform and Consumer Protection Act makes significant changes to federal regulation of the U.S. over-the-counter derivatives market — the main tools of hedging activities of farms and agribusinesses.
A derivative is a financial instrument whose value is based on the value of an underlying asset. These include tools like forwards, options, swaps and futures. In the United States, derivatives have long been tied to agriculture.
A new report by USDA’s Economic Research Service reviews some important features of the new law and discusses their potential impact on agribusiness.
The goal of this legislation was to improve market transparency and reduce systemic default risk. But, the authors concluded that much of the law’s impact will depend on how the rules are written and implemented by regulators.
Source: USDA-Economic Research Service