FX Swaps Regulation
From MarketsReformWiki
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| Proposal Date | Comment Deadline | Proposed Determination | Final Rule Issue |
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| October 28, 2010 | November 29, 2010 | April 29, 2011 | Late 2011/2012 |
The Dodd-Frank Act requires most swaps to be traded on an exchange or on a similar system and then guaranteed by a clearinghouse, where the parties would be required to post collateral. However, the act allows the Secretary of the Treasury to make a final determination as to whether foreign exchange transactions should be granted an exemption from the Dodd-Frank definition of swaps. On April 29, 2011, the Department of the Treasury issued its "proposed determination" that essentially exempted FX swaps from its definition of swaps. [1][2]Final rule issue is set for late 2011/2012.
Details of the proposed determination can be found below.
Background
Title VII of the Dodd-Frank Act includes Foreign Exchange Swaps and Forward Contracts in its definition of swaps under the Commodity Exchange Act. However, the Act allows the Secretary of the Treasury to determine whether to allow an exemption for such contracts. On October 29, 2010, the Department of the Treasury issued a notice and request for comments regarding the proposed exemption. The notice included a list of questions regarding, among other things:
- the appropriateness of exempting foreign exchange from the swaps definition;
- the adequacy of the regulatory structure surrounding foreign exchange;
- industry risks, including credit risk, counterparty risk, and other systemic risks; and
- the likely effects of mandatory clearing of FX swaps.
The deadline for public comments was November 29, 2010.[3] The entire proposal, as it appeared in the Federal Register on October 29, 2010, can be found below.
Proposed Determination, April 29, 2011
On April 29, 2011, the Treasury Department issued its notice of final determination of foreign exchange swaps and forwards. Under the proposal, both foreign exchange swaps and foreign exchange forwards would be exempt from the definition of swap, in accordance with the relevant provisions of the Commodity Exchange Act, and invites comment on the proposed determination, as well as the factors supporting such a determination.[4]
Under the proposed determination:
- FX swaps and forwards will be exempt from clearing, registration, and real-time reporting requirements.
- Trade information of an FX swap or forward transaction will still be required to be submitted to a swap data repository
- FX swaps and forwards involving a swap dealer or major swap participant will face certain additional compliance requirements.
- FX transactions traded on a designated contract market or swap execution facility are not exempt.
The proposed determination entered the Federal Register on May 5, 2011. The deadline for public comment was June 6, 2011.
Additional requirements for off-exchange retail forex transactions were addressed in a previous CFTC ruling on September 10, 2010.
References
- ↑ Wall Street Banks Seek Exemption From Dodd-Frank on Foreign-Exchange Swaps. Bloomberg.com. Retrieved on November 23, 2010.
- ↑ US Treasury grants exemption for forex swaps. FT.com. Retrieved on May 17, 2011.
- ↑ Federal Register /Vol. 75, No. 209 / Friday, October 29, 2010 /Notices. Federal Register. Retrieved on October 29, 2010.
- ↑ U.S. Department of the Treasury. Federal Register. Retrieved on May 2, 2011.
