The Commodity Exchange Act, or CEA, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, permits the Secretary of the Treasury to issue a written determination exempting foreign exchange swaps, foreign exchange forwards, or both, from the definition of a “swap” under the CEA. To date, the Secretary has not made any determination on whether an exemption is warranted. Although not required under the Dodd-Frank Act, the Department of the Treasury is inviting comment on whether such an exemption for foreign exchange swaps, foreign exchange forwards, or both, is warranted and on the application of the factors that the Secretary must consider in making a determination regarding these instruments.

In making the determination whether to exempt foreign exchange swaps and/or foreign exchange forwards, the Secretary of the Treasury must consider the following factors:

  • Whether the required trading and clearing of foreign exchange swaps and foreign exchange forwards would create systemic risk, lower transparency, or threaten the financial stability of the United States;
  • Whether foreign exchange swaps and foreign exchange forwards are already subject to a regulatory scheme that is materially comparable to that established by the CEA for other classes of swaps;
  • The extent to which bank regulators of participants in the foreign exchange market provide adequate supervision, including capital and margin requirements;
  • The extent of adequate payment and settlement systems; and
  • The use of a potential exemption of foreign exchange swaps and foreign exchange forwards to evade otherwise applicable regulatory requirements.