[Federal Register Volume 75, Number 208 (Thursday, October 28, 2010)]
[Notices]
[Pages 66426-66427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27274]
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DEPARTMENT OF THE TREASURY
Determination of Foreign Exchange Swaps and Forwards
AGENCY: Departmental Offices, Department of the Treasury.
ACTION: Notice and request for comments.
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SUMMARY: The Commodity Exchange Act (``CEA''), as amended by Title VII
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''),\1\ 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. The Secretary has made no determination whether an exemption is
warranted. Although not required under the Dodd-Frank Act, the
Department of the Treasury invites 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.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
DATES: Written comments must be received on or before November 29,
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2010, to be assured of consideration.
ADDRESSES: Submission of Comments: Please submit comments
electronically through the Federal eRulemaking Portal--
``Regulations.gov.'' Go to http://www.regulations.gov to submit or view
public comments. The ``How to Use this Site'' and ``User Tips'' link on
the Regulations.gov home page provides information on using
Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period. Please
include your name, affiliation, address, e-mail address and telephone
number(s) in your comment. All statements received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. You should submit only
information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Office of Financial Institutions
Policy, 1500 Pennsylvania Avenue, NW., Washington, DC 20220, (202) 622-
2730, [email protected].
SUPPLEMENTARY INFORMATION: Section 721 of the Dodd-Frank Act \2\ amends
section 1a of the CEA which, in relevant part, defines the term
``swap'' under the CEA. Section 1a(47)(E) of the CEA authorizes the
Secretary of the Treasury to make a written determination that
``foreign exchange swaps'' \3\ or ``foreign exchange forwards,'' \4\ or
both, should not be regulated as swaps under the CEA,\5\ as amended by
the Dodd-Frank Act, and are not structured to evade the Dodd-Frank Act
in violation of any rule promulgated by the Commodity Futures Trading
Commission (``CFTC'').\6\
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\2\ Public Law 111-203, 124 Stat. 1376 (2010).
\3\ 7 U.S.C. 1a(25) (``a transaction that solely involves--(A)
an exchange of 2 different currencies on a specific date at a fixed
rate that is agreed upon on the inception of the contract covering
the exchange; and (B) a reverse exchange of the 2 currencies
described in subparagraph (A) at a later date and at a fixed rate
that is agreed upon on the inception of the contract covering the
exchange.'').
\4\ 7 U.S.C. 1a(24) (``a transaction that solely involves the
exchange of 2 different currencies on a specific future date at a
fixed rate agreed upon on the inception of the contract covering the
exchange.'').
\5\ 7 U.S.C. 1(a)(47)(E)(i)(I).
\6\ 7 U.S.C. 1(a)(47)(E)(i)(II).
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In making the determination whether to exempt foreign exchange
swaps and/or foreign exchange forwards,\7\ the Secretary of the
Treasury must consider the following factors:
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\7\ Notwithstanding any such determination by the Secretary of
the Treasury, all foreign exchange swaps and forwards must be
reported to a swap data repository, and swap dealers and major swap
participants that are parties to foreign exchange swaps and forwards
transactions must conform to business conduct standards pursuant to
the requirements of the Dodd-Frank Act and implementing regulations
thereunder.
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(1) 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;
(2) 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;
(3) The extent to which bank regulators of participants in the
foreign exchange market provide adequate supervision, including capital
and margin requirements;
(4) The extent of adequate payment and settlement systems; and
(5) The use of a potential exemption of foreign exchange swaps and
foreign exchange forwards to evade otherwise applicable regulatory
requirements.\8\
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\8\ 7 U.S.C. 1b(a).
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The Treasury Department is soliciting comments on the above
factors, and any relevant information that may bear on the regulation
of foreign exchange swaps and foreign exchange forwards as ``swaps''
under the CEA, to assist in the Secretary's consideration of whether to
issue a determination under section 1a(47) of the CEA.
In addition, the Treasury Department is particularly interested in
comments on the questions set forth below:
(1) Are foreign exchange swaps and/or foreign exchange forwards
qualitatively different from other classes of swaps in a way that makes
them ill-suited for regulation as ``swaps'' under the CEA? \9\ Are
there similarities
[[Page 66427]]
between foreign exchange swaps and/or foreign exchange forwards and
other products not defined as swaps under the CEA?
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\9\ 7 U.S.C. 1b(b)(1).
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(2) Are there objective differences between swaps and foreign
exchange swaps and/or foreign exchange forwards that warrant an
exemption for either or both of these instruments? \10\
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\10\ 7 U.S.C. 1b(b)(2).
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(3) Are there objective differences between long-dated and short-
dated foreign exchange forwards and swaps such that one class may be
less suited to regulation as ``swaps'' under the CEA than the other? Is
the same true for dealer to dealer transactions versus transactions
where one counterparty is a non-dealer? Similarly, does one or more of
the above-referenced, five statutory factors support the application of
certain requirements set forth in the CEA, but not others (e.g.,
centralized clearing, but not exchange trading), to foreign exchange
swaps and/or foreign exchange forwards?
(4) What are the primary risks in the foreign exchange swaps and
forwards market, how significant are these risks, and how are these
risks currently managed by market participants? Would centralized
clearing and exchange trading address these risks? To what extent do
current payment-versus-payment settlement arrangements address
settlement risk?
(5) To what extent is counterparty credit risk a significant
concern in the foreign exchange swaps and forwards markets? If so, to
what extent do current market practices (including netting and
bilateral collateral support arrangements) mitigate these risks? What
evidence, particularly during the period between 2007 and present,
illustrate how current market practices have either addressed, or
failed to respond, to these risks?
(6) Are there ways to mitigate the risks posed by the trading of
foreign exchange swaps or foreign exchange forwards without subjecting
these instruments to regulation under the CEA?
(7) Are there existing safeguards or systems that should be
enhanced in order to protect against systemic or other risks in the
foreign exchange swaps and forwards markets? What considerations are
relevant to the application of Title VIII of the Dodd-Frank Act to the
foreign exchange swaps and forwards markets, specifically to enhance
supervision, strengthen risk management, and lower systemic risk?
(8) Given that the Dodd-Frank Act requires all foreign exchange
swaps and forwards be reported to a swap data repository, what is the
current standard or practice in the foreign exchange market for
reporting trades?
(9) What would be the likely effects of mandatory U.S. clearing of
foreign exchange swaps and/or forwards on foreign exchange market
liquidity in the U.S. dollar? What would be the impact on the
operations of U.S. end-users and U.S. dealers?
(10) What other factors should the Secretary of the Treasury
consider in determining whether to exempt foreign exchange swaps and/or
forwards pursuant to section 1a(47) of the CEA?
In addition, commenters are encouraged to submit supporting
materials, including relevant transactional data, that would assist the
Secretary's consideration of the issues relating to an exemption for
foreign exchange swaps or foreign exchange forwards, or both, under
section 1a(47) of the CEA.
Dated: October 19, 2010.
Mary J. Miller,
Assistant Secretary for Financial Markets.
[FR Doc. 2010-27274 Filed 10-27-10; 8:45 am]
BILLING CODE 4810-25-P