Like most human beings, I somewhat wish derivatives had never been invented—not because they aren't useful (they are), but because discussion of how to regulate the derivatives trade makes my head hurt. I'm sure I am not alone on this.

Nevertheless, how derivatives are created, traded, and disclosed to the public is indeed an important discussion to have. Congress is in the final stages of hashing out its regulatory reform bill—which at last count has hit more than 1,900 pages—and apparently derivatives have become a late-stage battleground before the final legislation passes and becomes law.

To many executives, this may seem like an obscure fight that only matters to the corporate treasurer or maybe the risk-management office if your company works in financial services. It isn't. The more you dig into exactly what the derivatives business might look like after reform, the more queasy accounting, financial reporting, and compliance officers should feel. Let me give you a simple, hypothetical example.

Acme Airlines is an international airline that has to worry about fluctuations in the price of oil. It wants to purchase derivative instruments that will off-load those risks to another party more willing to shoulder them. Those derivatives will cost Acme some money, yes, but that's a small price to pay for stability in a very uncertain part of Acme's business.

Right now, Acme can buy those derivatives by calling around to various investment bankers, hedge funds, or anyone else willing to enter into the deal. XYZ Bank steps forward and says it is happy to provide oil for $72 per barrel for the next 12 months, in a deal worth a total of $100 million. Of course, XYZ wants some protection in case Acme goes bankrupt during that time, so Acme posts one of its jets as collateral. The deal is done.

Now let's consider that deal in a post-reform world.

At the core of Washington's reforms is the idea of a clearinghouse to manage derivatives trading. Instead of Acme shopping around for derivatives and buying them from XYZ, it approaches the New York Derivatives Exchange and buys its derivatives directly from the exchange. The Derivatives Exchange, in turn, then sells that derivative exposure to another party—perhaps XYZ Bank, but perhaps some other party or even several parties, each getting a piece of the $100 million in exposure.

What's happened here? The risk of the derivative instruments has shifted from the counter-party (XYZ Bank) to the clearinghouse. That prevents Acme from getting screwed should XYZ ever fail to deliver its end of the contract—but it also means that our clearinghouse, New York Derivatives Exchange, carries a lot of risk. And that, in turn, means the exchange will need sky-high capital reserves.

You, Acme Airlines, will be paying for those higher reserves.

Exactly how much more this new clearinghouse model will drive up costs is still anyone's guess. Lawmakers hope that multiple clearinghouses will emerge, competing against each other for business and keeping price increases minimal. I see the Econ 101 logic in that, but I'll believe it only when I see it.

We have two other headaches in our clearinghouse world. First, remember that jet Acme posted as collateral to XYZ? That option flies away. The clearinghouse will want cash as collateral. After all, if Acme does default on its end of the contract, what good is it for the clearinghouse to take possession of a plane? Second, the amount of cash the clearinghouse will want as collateral will fluctuate as well, every day, to offset the clearinghouse's own risks and capital reserve requirements.

Again, nobody yet knows exactly how much cash this new model will cost, although I suspect the Wall Street quants are already working on that. But it will cost something.

Foremost, accounting and financial reporting executives should feel the most unease here. They'll be the ones calculating all these shifting derivative prices, and they'll be part of that finance team ensuring that the company has enough cash on hand to meet the clearinghouse's demands every day. None of that will be easy.

Compliance and risk officers won't get off the hook either. Risk officers will need to pay more attention to whether the company should take out derivatives contracts in the first place, given the higher cost of purchasing them. They'll need to ensure that the company stays within any financial restraints (say, a debt covenant or some key leverage ratio) that might trigger higher collateral requirements from the clearinghouse. Compliance officers will need to ensure all reporting is done accurately, promptly, and properly. And of course, all that cash going to collateral payments has to come from somewhere—like, say, that anti-bribery training program you wanted to launch in 2011.

All this is not to say that reforming derivatives is a bad idea; on the contrary, this is one part of the financial world that desperately needs more oversight. But Congress is down to brass tacks now, and no matter how boring or complicated derivatives oversight may seem, it's worth paying attention. Occasionally those folks in Washington do stuff that actually matters.

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