Exemption of FX Swaps, Forwards Leaves Unresolved Issues

Treasury's decision to free some FX derivatives from clearing requirements leaves corporate end users querying the status of non-deliverable forwards.

Tom Deas of FMC Corp., NACTThe U.S. Treasury finally announced late last week that it was exempting foreign exchange forwards and swaps from Dodd-Frank clearing requirements, but there are still several issues outstanding that could affect corporate end users of derivatives. 

FX forwards and swaps remain subject to requirements including trade reporting, the Commodity Futures Trading Commission’s anti-evasion authority, which aims to keep Wall Street from tweaking cleared FX products to receive exempt status, and Dodd-Frank’s business conduct rules, according to an analysis by Cadwalader Wickersham & Taft.

Luke Zubrod of Chatham financialLuke Zubrod, director at Chatham Financial, says the CFTC staff’s acknowledgement that the agency could exempt NDFs raised a spark of hope, especially since NDFs resemble deliverable forwards and are really the only option for companies hedging the risk of some currencies.   

“Market participants need to assume that the current state of affairs will likely remain,” Zubrod says. “But there will probably be a debate in the background raising at least the possibility that NDFs could gain consideration for also being exempted.”

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