Firms that hedge foreign exchange exposures will need to obtain regulatory approval by the end of the year to qualify for end-user exemptions for swaps subject to new clearing and trading requirements.
Title VII of the 2010 Dodd-Frank Act amends federal securities laws, including the Commodity Exchange Act, to establish a new regulatory framework for the treatment of derivatives most often defined as swaps.
For corporate end-users of FX derivatives, there are two proposed exemptions from Dodd-Frank clearing and reporting requirements. The secretary of the U.S. Treasury is authorized to exempt certain FX swaps and forwards from the requirements, and companies that meet certain requirements established by the Commodity Futures Trading Commission are also extended an exemption known as an “end-user exception.”
FX derivatives entered into by a corporate end-user that are not subject to the Treasury’s exemption are eligible for the end-user exception.
The end-user exemption becomes final on Sept. 17, though under the CFTC’s final implementation schedule for mandatory clearing, non-financial end-users are not subject to those clearing requirements until 270 days after they become effective.
Dodd-Frank mandates that all swaps are reported to a swap data repository or a relevant commission. If a firm’s counter-party is not another end-user, however, the firm is not subject to Dodd-Frank reporting requirements.