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The “Global FX Division” of AFME, SIFMA and ASIFMA (three global FX Trade bodies)  have written to the US Treasury setting out clearly, why FX Swaps and Forwards should be exempt from Dodd Frank legislation (full letter here)

Wall Street Journal carries the story today (may need to subscribe) on the letter, citing an extract in which the trade lobby;

warned that pushing currency swaps and forwards onto exchange-type trading systems would be unnecessary, of little benefit and potentially “catastrophic.”

The Global  FX Division site the following key reasons to exempt FX:

1. The Foreign Exchange Market, Including FX Forwards and FX Swaps, Is Qualitatively Different From Derivatives Markets and Should Be Overseen by Central Banks, Including the Federal Reserve as the U.S. Central Bank
2. The FX Market Is a Global Payment System with a Well-Developed Settlement System That Has Effectively Mitigated Systemic Risk.
3. Imposing Mandatory Trading and Clearing on the FX Market Would IncreaseSystemic Risk and Threaten Financial Stability.
4. Central Banks Actively Oversee and Are the Appropriate Primary Regulators ofthe FX Market.
5. The Federal Reserve Has Authority to Regulate “Systemically Important” Payment Activities and Designated Activities by Financial Institutions Under Title VIII of the Dodd-Frank Act.
6. Regulators Have Ample Tools to Address Any Potential Abuses of the Exemption to Evade Otherwise Applicable Regulatory Requirements.

They further state:

Mandatory exchange or SEF trading is unnecessary and would decrease liquidity in the FX market.

The letter is well worth reading for all participants in the FX market, and especially those involved in electronic trading and eFX.

Filed under: Dodd Frank, FX, Regulation | Tagged: AFME, Dodd Frank, FX, SEC, SEF | 5 Comments »