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by Sutherland's Derivatives and Structured Products Team
Section 1a(47)(E) of the Commodity Exchange Act (CEA), as
amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank), empowers the Secretary of the Treasury (Treasury Secretary) to
categorically exempt foreign exchange swaps and forwards from being regulated
as "swaps" under the CEA, as amended by Dodd-Frank. On October 28, 2010, the
Department of the Treasury (Treasury Department) published a Notice and
Request for Comments (Notice) in the Federal Register seeking public input on
whether foreign exchange swaps and/or forwards should be exempt from
Dodd-Frank's regulatory framework for swaps. The Notice puts forth a series of
questions and also asks members of the public to comment on factors the
Treasury Secretary should take into account in determining whether an exemption
is necessary for foreign exchange swaps and forwards. Comments must be
submitted electronically on or before November 29, 2010.
The CEA defines a foreign exchange swap as either: (A) a
transaction that involves an exchange of two different currencies on a specific
date at a fixed rate; or (B) the reverse exchange of the two currencies in (A)
on a later date at a fixed rate. A foreign exchange forward is a transaction
that solely involves the exchange of two different currencies on a specific
future date at a fixed rate. Both foreign exchange swaps and forwards fall
under the definition of a "swap" under Dodd-Frank.1 Accordingly, foreign
exchange swaps and forwards will be subject to Dodd-Frank's regulatory regime
once Dodd-Frank's reforms go into effect in July 2011.
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