[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, <a href="/cdn-cgi/l/email-protection#036c656a7343676c2d77716662702d646c75"><span class="__cf_email__" data-cfemail="f39c959a83b3979cdd8781969280dd949c85">[email protected]</span></a>.

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


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