The US's Dodd-Frank Act has ruled that central clearing for foreign exchange (FX) derivatives products will be mandatory. While FX spot trading does not fall within the remit of Dodd-Frank, FX options and non-deliverable forward (NDFs) will become cleared products and in July, the US Treasury will decide whether to include FX swaps and forwards. Many in the market still hope that short-dated products will be exempt.
The new regulation states that FX swaps and forwards will be considered to be swaps, and subject to oversight by the Commodity Futures Trading Commission (CFTC), unless the US Treasury makes a written determination that either or both types of transactions should not be regulated as swaps. But even if the US Treasury ultimately decides to exclude FX swaps and forwards, they will still need to be reported to a swap data repository or to the CFTC.
