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. The Determination is effective immediately.
Key takeaways for market participants are:
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.