Shearman Logo

balance scale

Dec 06, 2012

Dodd-Frank: Treasury Exempts FX Swaps and FX Forwards

Subscribe

Jump to...

 

On November 16, 2012, the Department of the Treasury (“Treasury”) issued a determination (“Determination”) that both foreign exchange (“FX”) swaps and FX forwards should not be regulated under the Commodity Exchange Act (“CEA”) and therefore should be exempted from the definition of “swap” under the CEA as amended by the Dodd Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”). The Determination is a wholesale adoption of the proposed determination issued by the Treasury last year.[2] The Determination is effective immediately.

Key takeaways for market participants are:

  • FX swaps and FX forwards are exempt from the trade execution, mandatory clearing and margin requirements under Dodd-Frank;
  • Many commonly used FX derivatives, including foreign currency options, currency swaps and non deliverable forwards are not exempt;
  • Exempt FX swaps and FX forwards are still subject to Dodd-Frank’s reporting requirements and swap dealers must still comply with external business conduct rules in connection with such transactions, with compliance being required as soon as December 31, 2012.

The Determination was strongly supported by many market participants, who argued that applying clearing and trading requirements to FX swaps and FX forwards would increase costs and ultimately have an adverse effect on U.S. business and discourage hedging activity.

View full memo, "Dodd Frank: Treasury Exempts FX Swaps and FX Forwards"

Authors and Contributors

Azam Aziz

Partner

Derivatives & Structured Products

+1 212 848 8154

+1 212 848 8154

New York

Geoffrey Goldman

Partner

Derivatives & Structured Products

+1 212 848 4867

+1 212 848 4867

New York

Donna Parisi

Partner

Derivatives & Structured Products

+1 212 848 7367

+1 212 848 7367

New York

Bradley K. Sabel

Of Counsel

Financial Institutions Advisory & Financial Regulatory

+1 212 848 8410

+1 212 848 8410

New York

John (Sean) Finley

Partner

Investment Funds

+1 212 848 4346

+1 212 848 4346

New York

Nhung Pham

Associate

Investment Funds

+1 212 848 7885

+1 212 848 7885

New York