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Rate Derivatives Margin Rules May Cost $1.4 Trillion, Tabb Says

Interest-rate derivative users may have to set aside at least $1.4 trillion in margin payments under new rules mandated by the U.S. Dodd-Frank Act, according to research firm Tabb Group.

The costs will come in the next three to five years as derivatives based on interest-rates such as swaps are required to be processed by clearinghouses to reduce risk in the $465 trillion market, E. Paul Rowady, a TABB senior analyst, said in a report today. Clearinghouses collect daily margin, monitor prices on trades and help settle defaults. LCH.Clearnet Ltd., the world’s largest interest-rate swap clearinghouse, has processed voluntary bank-to-bank trades since 1999.