The U.S. Treasury will push forward with its proposed plan to exempt forex swaps and forward contracts by the end of the year, after the November 6 elections. The decision is expected by 2013 as foreign regulators work to complete derivatives regulation abroad.
Firms were left in limbo after the Treasury failed to finalize the plan on schedule. Initially, the forex swaps exemptions were to be finalized on October 13. When the deadline passed, firms were uncertain whether they would be subjected to registration as swap dealers and therefore higher costs.
Although the expected rules will likely exempt forex swaps and forward contracts from counting toward an $8 billion threshold that would require firms to register as swaps dealers, the new rules would not exempt the financial instruments from trade reporting and conduct rules stemming from Dodd-Frank Act.
CFTC No-Action Letters For Forex Firms
The U.S. Commodity Futures Trading Commission (CFTC) began issuing no-action letters providing relief for firms in the short-term. The no-action letters mandate, for now, that these firms do not have to count forex swaps against the registration threshold.
The forex exemption is not set in stone, however, and several banks have already begun to register as swaps dealers.
“Because frankly you can’t rely on the expectation that the exemption is going to happen so firms are put in a situation where for this two month period they have to prepare to tell their stockholders we did what was necessary to make sure we are in compliance with the new derivatives regulations,” said Rober Hatch, counsel for the Financial Services Regulatory Roundtable.
Forex Exemption Plan Unpopular With Advocacy Groups
The forex exemption plan, however, is unpopular with some advocacy groups. Americans for Financial Reform (ARF) and the Consumers Federation of America (CFA) delivered a letter to the Treasury last year criticizing it for creating a plan with loopholes that may be used by firms to structure other swap products to qualify for the exemption.