As permitted by the Dodd-Frank Act, the Treasury Department has decided to exempt foreign exchange (forex) swaps and forwards from the definition of “swaps” that come under an array of requirements in the new law. Had Treasury not acted on its authority – wholly possible under the law – all forex instruments would have been subjected to swaps regulation, meaning a move to central clearing and coverage under an array of other prudential requirements that would fundamentally alter this market. The statutory language does not permit a similar exemption for forex options or non-swap/forward instruments; Treasury thus has not provided one for them or other forex instruments. It has further stressed that it will work with regulators to ensure that instruments in foreign-exchange markets are not structured to evade otherwise-applicable clearing and regulatory requirements.
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