The Traders Win! New Dodd Frank Rules To Exempt FX Derivatives

banker celebrate

The Treasury Department said on Friday that it plans to exempt FX derivatives from the new Dodd Frank rules.

Some people are worried that if exempted, systemic firms will be at greater risk, according to the WSJ:

Critics argue the exempted foreign-exchange products can be used to replicate many of the interest-rate swaps that the law seeks to regulate and which can be used to make risky speculative bets.

But the FX market is the biggest, and the WSJ points out that it functions well now, without regulation.

Plus, MarketWatch says it would create an unnecessary step in a relatively short-term market.

Without an exemption, foreign exchange swap transactions would need to take place on trading platforms, where the terms of the deals would be made public. The deals would have also have to take place through clearinghouses, which are capitalised intermediaries between buyers and sellers.

But Dodd Frank wasn’t going to regulate all derivatives anyway. So of course hacking away another bit of it seems like a loss for the government and a win for Wall Street.

The exemption hasn’t been made yet and the Treasury is taking comment on the matter until July.