U.S. Treasury Exempts Foreign Exchange Swaps From Dodd-Frank

Bloomberg, By Silla Brush, November 16

The U.S. Treasury Department exempted foreign-exchange swaps and forwards from Dodd-Frank Act regulations intended to reduce risk and increase transparency in the derivatives market.

Foreign-exchange swaps and forwards are short-term transactions that already have high-levels of transparency and risk management, the department said in a statement yesterday announcing the exemption. Deutsche Bank AG, Bank of New York Mellon Corp., UBS AG (UBSN) and other banks urged Treasury Secretary Timothy F. Geithner to exempt the market. The exemption had been resisted by some regulators, Democratic lawmakers and advocates of tighter rules.

“Unlike other derivatives, FX swaps and forwards already trade in a highly-transparent, liquid and efficient market,” the Treasury Department said. “This final determination is narrowly tailored.”

Foreign exchange contracts were the second-largest source of derivatives trading revenue for U.S. bank holding companies in the second quarter, according to the U.S. Office of the Comptroller of the Currency. The companies recorded $3.1 billion in revenue on trading of foreign exchange derivatives.


“Wall Street fought hard to convince Treasury to grant this loophole, which is unjustified by independent research,” Dennis Kelleher, president and chief executive officer of Better Markets, an organization advocating stricter financial regulation, said in an e-mail statement. “That may be why, after two years of consideration, the United States Treasury announced such an important financial regulation decision on a Friday night at 5 p.m. when Congress is on recess and on the eve of the Thanksgiving holiday.”

Via Matt Stoller: White House and Treasury begin deregulation of financial markets again. Because that never caused problems. http://t.co/lsJ0w3mV

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  • I don’t have a problem with that. Long before there were derivatives there were foreign exchange forward contracts. These are very basic products that have been around for hundreds of years. In the major currency pairs, they are traded openly with price discovery easy to achieve. They are the only major over the counter product (bank-to-bank) that is settled on a clearing house. That’s why there were no losses in foreign exchange in 2008 despite the whole financial world falling apart.

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