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ABA urges Treasury, CFTC to exempt FX products from swaps definition

The American Bankers Association requested in a letter to the Commodity Futures Trading Commission and Treasury Department this week that the regulators lend an exemption for foreign exchange products from the Commodity Exchange Act.

“[W]e respectfully request that the Treasury promptly finalize its proposed determination to exempt the FX products or, if not possible, the CFTC clarify that it will not treat the FX products as swaps under the CEA until a reasonable amount of time after the Treasury issues its determination,” the ABA said.

The ABA also expressed concern that some market participants would be forced to leave the market due to registration requirements.

“We are greatly concerned that if Treasury or the CFTC does not act in the next several weeks, many participants in the markets for the FX products — including many smaller participants — will have to either register in one or more capacities with the CFTC due to their activities in either or both of the FX products or exit those markets so as to avoid registering,” the letter said.

In April 2011 the Treasury proposed determinations for FX products from the definition of “swap” under the CEA, though the Treasury has yet to finalize its determinations. Since then, the CFTC has finalized a number of swaps rules, including product definition rules and subsequent registration requirements.

“Under the product definition rules, the FX products are included in the definition of swap unless and until the Treasury determines that they should be excluded,” the ABA said.

The ABA called on the Treasury to finalize its proposed determinations to verify which FX products are exempt from the CEA and subsequent registration requirements and asked the CFTC to avoid the treatment of FX forwards and swaps as swaps until the Treasury can make a final determination.

“By providing the relief requested in this letter, Treasury and the CFTC would bring certainty to market participants and avoid imposing unnecessary, unintended and avoidable consequences to the swap markets and market participants,” the letter said.