Treasury Issues Final Determination on Foreign Exchange Swaps and Forwards

by Morgan Lewis

[authors: Michael A. Piracci and Dana D.C. Westfall]

Foreign exchange swaps and foreign exchange forwards are exempted from the definition of "swap" under the Commodity Exchange Act.

On November 16, the Secretary of the U.S. Department of the Treasury (Secretary) issued a final determination (Determination) exempting foreign exchange swaps (FX Swaps) and foreign exchange forwards (FX Forwards) from the definition of "swap" under the Commodity Exchange Act (CEA), thereby relieving them from the central clearing and exchange-trading requirements that apply to other types of swaps.[1] The Determination will become effective upon publication in the Federal Register.

Exemption for FX Swaps and FX Forwards from "Swap" Definition

FX Swaps are defined in the CEA to include (1) an exchange of two different currencies on a specific date at a fixed rate that is agreed upon at the inception of the contract covering the exchange and (2) a reverse exchange of those two currencies at a later date and at a fixed rate that is agreed upon at the inception of the contract covering the exchange. FX Forwards are defined in the CEA to include a transaction that solely involves the exchange of two different currencies on a specific future date at a fixed rate agreed upon at the inception of the contract involving the exchange.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the definition of "swap" included FX Swaps and FX Forwards, which therefore made them subject to all of the Dodd-Frank Act requirements applicable to swaps, such as the central clearing and exchange-trading requirements, reporting obligations, business conduct standards, and margin requirements. The Dodd-Frank Act, however, also gave the Secretary the authority to make a determination that FX Swaps and FX Forwards should be exempted from the definition of "swap," and thus the Dodd-Frank Act requirements applicable to swaps, other than anti-evasion provisions, reporting to a swap data repository and business conduct standards for swap dealers and major swap participants (MSPs).

In the Determination, the Secretary noted that FX Swaps and FX Forwards differ from other swap transactions in that they generally have fixed payment obligations, are physically settled, and are predominantly short term. The Secretary noted that these characteristics obviate the need for the central clearing and exchange-trading requirements that apply for other types of swaps.

The Secretary specifically noted that the Treasury Department's authority to issue the Determination was limited to FX Swaps and FX Forwards and did not extend to other types of foreign exchange derivatives. Specifically, foreign exchange options, currency swaps, and non-deliverable foreign exchange forwards (NDFs) are not covered by the Determination and, therefore, remain within the definition of "swap" and thus are subject to all of the CEA's swap requirements.


Despite the Determination, transactions in FX Swaps and FX Forwards still must comply with the CEA's general reporting requirements (but not real-time reporting requirements), and swap dealers and MSPs that are parties to a transaction involving FX Swaps or FX Forwards still must comply with external business conduct standards. FX Swaps and FX Forwards also are subject to the Commodity Futures Trading Commission's (CFTC's) anti-evasion authority.

FX Swaps and FX Forwards do not need to be included in calculating whether an entity must register as a swap dealer or an MSP or considered in determining whether an entity's activities involve commodity interests requiring registration as a futures commission merchant, introducing broker, commodity pool operator (CPO), or commodity trading advisor (CTA). Additionally, FX Swaps and FX Forwards will not be subject to the mandatory clearing and exchange-trading requirements established as part of the new swap regulatory framework.

The Determination also eliminates the need for the relief provided by the CFTC Division of Swap Dealer and Intermediary Oversight's October 12 No-Action Letter,[2] which allowed entities to exclude FX Swaps and FX Forwards from threshold calculations for determining if swap-dealer or MSP registration was required, or if CPO or CTA registration was required, because of an entity's swaps activity (No-Action Relief). As a result of the Determination, the No-Action Relief is moot.

[1]. View the Determination here.

[2]. For more information, read our October 12, 2012, LawFlash, "Temporary Relief from Registration for Swaps Intermediaries," available here.


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.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.