§1b Requirements of Secretary of the Treasury regarding exemption of foreign exchange swaps and foreign exchange forwards from definition of the term “swap”

Summary

Before deciding to exclude foreign exchange swaps and forwards from the legal meaning of “swap,” the Secretary of the Treasury must look at five things. The Secretary must check if forcing trading and clearing would cause systemic risk, reduce transparency, or harm U.S. financial stability; whether these contracts are already regulated in a similar way; whether bank regulators give enough supervision (including capital and margin rules); whether payment and settlement systems are adequate; and whether an exemption could be used to dodge other rules. If the Secretary decides to exempt them, he must send Congress a written explanation saying why these contracts are different from other swaps and point out the clear, objective differences that justify the exemption. Even with an exemption, swaps and forwards traded on a designated contract market or swap execution facility still must follow the law’s antifraud and antimanipulation rules.