U.S. Treasury Proposal Excludes Certain Foreign Exchange Derivatives from “Swap” Definition


Pursuant to authority granted to it under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the U.S. Treasury Department has proposed excluding foreign exchange swaps and forwards from the definition of a "swap" under the Commodity Exchange Act (“CEA”).

In its notice, Treasury stresses that the definitions of foreign exchange swap and foreign exchange forward in the CEA are quite narrow. The following types of currency derivatives are covered by the exclusion:

• “Foreign exchange forwards,” which involve the physical exchange of two different currencies at a fixed rate on a fixed future date; and

• “Foreign exchange swaps,” which involve a physical exchange of two different currencies at a fixed rate on a fixed date, followed by a reverse exchange of these two currencies at a fixed rate at a later date.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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