By Sarah N. Lynch and Douwe Miedema
WASHINGTON Nov 16 Banks and other large market
players that use certain derivatives to protect against currency
fluctuations will be spared from the most costly new rules
required by the 2010 Dodd-Frank Act, the U.S. Treasury
Department said late Friday.
Foreign exchange swaps and forwards, common types of
contracts found in the $640 trillion over-the-counter
marketplace, will not be forced onto regulated trading platforms
or clearinghouses, which stand between parties to guarantee
They still will face some Dodd-Frank rules, such as data
reporting and business conduct standards.
The Treasury's decision will be a welcome announcement for
large banks, which heavily lobbied for an exemption. The
Treasury justified its decision by noting that the market is
"markedly different" and already has an infrastructure in place
to reduce risks.
Although Treasury in April 2011 had signaled its support for
such an exemption, its delay in releasing a final decision had
left banks anxious because a key date - Oct. 12 - started the
countdown for banks to begin complying with some of the
Commodity Futures Trading Commission's new rules for
Banks have until the end of the year to calculate their
swaps transactions. If the annual volume exceeds $8 billion,
they will need to register with the CFTC as swap dealers.
By exempting certain foreign exchange products, it may help
prevent some companies from hitting the threshold and having to
CFTC Chairman Gary Gensler has previously pushed for
Treasury to regulate all forex swaps, saying an exemption could
be exploited to evade new rules.
A CFTC spokesman declined to comment on the Treasury's
decision on Friday.
Nevertheless, the Treasury did not give an all-out victory
to the banks.
The department said on Friday that some products - forex
options, currency swaps and non-deliverable forwards - are not
covered by the exemption.
These products, the Treasury said, "will be subject to
mandatory clearing and exchange-trading requirements."
U.S. derivatives rules are being viewed skeptically by some
banks in Asia and Europe.
Some of those mid-sized banks have told their brokers to
stop doing trades with U.S. firms, in the hope of avoiding the
burden of becoming a U.S.-regulated dealer.
Nordea, a Nordic bank, and DBS Group Holdings
, southeast Asia's largest bank by assets, have already
said they do not want to become U.S. regulated dealers.
Bank of America, Citigroup, Goldman Sachs
, JP Morgan and Morgan Stanley alone handle
more than a third of swaps trading, according to data provided
by the International Swaps and Derivatives Association.