Ask FERF about ... corporate treasury issues.

Treasurers have a lot on their minds, and based on a recent survey, some strongly held opinions about key issues in their area. The findings, summarized below, stem from a survey sent via email in April to 1,968 Financial Executives International (FEI) members with the titles treasurer or vice president of finance. A total of 74 completed responses were received, representing a 3.8 percent response rate.

The survey was developed following a meeting of FEI's Committee on Corporate Finance (CCF) in March, at which CCF discussed several items for potential focus in the coming months. Based on this discussion, CCF worked with Financial Executives Research Foundation (FERF) to develop a survey intended to receive input from FEI treasurer members on whether these identified issues would be worth pursuing with policymakers.

Insurance Industry

According to 70 percent of respondents, more should be done to increase the level of price competition among insurance brokerage companies.

Four companies noted that competition is fostered by working with multiple brokers and insurance companies to obtain several quotes. Another four companies said that complete disclosures on all commissions and fees should be provided upon request. Premiums can then be adjusted accordingly. Two respondents noted that increased transparency or required disclosure would be helpful in decision-making and may result in prices regulating themselves.

Though 70 percent felt more should be done to increase competition, 57 percent thought more regulation was the answer. Additionally, 58 percent did not think the level of state regulation is adequate to protect consumer interests.

A possible solution recommended by some respondents would be federal regulation that could streamline or replace state regulation. More standardization, some said, may be more cost-effective because national insurance firms must be licensed in each individual state. This would increase competition by allowing more companies to quote within a state.

Credit Derivative Swaps (CDS)

By synthetically creating or eliminating credit exposures, these instruments can allow more effective management of credit risks. According to 60 percent of respondents, however, the growth of CDS contracts presents a risk for destabilization of the nation's credit markets, with some foreseeing issues such as cascading defaults, appropriate pricing, credit concentration and a related lack of transparency. A significant majority (78 percent) think that financial market participants need to organize some central form of clearing of CDS contracts. However, some noted that while a central clearing house would be helpful, it is not necessary.

Regulation Fair Disclosure (FD)

Securities and Exchange Commission (SEC) Reg FD requires fair disclosure of any material information be made to all investors at the same time. It should be noted that equity investors may have different standards of materiality than fixed-income investors. Indeed, 76 percent of respondents agreed that greater clarity is needed regarding the different materiality standards for fixed-income investors--a response that was unexpected by CCF, according to Ann Svoboda, Regional Treasurer-The Americas for Cadbury Schweppes Plc, also a member of CCF and FERF's Research Advisory Council.

Other Issues

Debt Securities Underwriting -- A significant majority (75 percent) agreed that there needs to be greater competition in this business. Though many favored more competition, some preferred to let the market drive competition (through more aggressive negotiation and product offering) rather than rely on regulation.

Hedge funds -- These investment vehicles have proliferated, attracting both institutional and retail assets. Seventy-seven percent of respondents said there needs to be more regulation of hedge funds to protect investors. Seven members who commented on why they supported regulation suggested that regulation be directed based on type of investor, and toward retail funds in particular, or that regulations should stress increased transparency through more disclosure.

Leveraged Buyouts and Private Equity Funds -- Current SEC regulations do not require public disclosure of significant shareholdings until the end of the quarter. A majority (56 percent) of respondents agreed that there should be rules requiring faster disclosure of significant shareholdings by investors.

Overall, the results suggest that a majority of respondents would like to see regulatory changes. However, any changes should reduce complexity and enhance transparency without increasing costs.

Complete survey findings are available at the FERF bookstore. www.fei.org/rfbookstore. Information about CCF is at: http://www.fei.org/committees/CCF.

Cheryl de Mesa Graziano, CPA ([e-mail]), is Vice President, Research and Operations at Financial Executives Research Foundation (FERF).

contributed by FERF