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And Another Thing…

When will we ever learn about FX under Dodd-Frank? According to some sources it could be this week. There is some excitable chatter out there that the US Treasury is set to announce whether or not FX swaps has an exemption on 1 April. From an industry standpoint I think this can only be a good thing. From a personal standpoint I couldn’t think of anything worse – I have five panels at Forex Network London next Thursday which means I will have to re-write all my questions.

Anyway, as things stand we continue to await developments both in the US and Europe, and overall I would have to say that the outlook is vaguely positive with senior figures in both administrations highlighting that FX is indeed different.

On a related note, I was a little puzzled by the “big” news that was forwarded to me last week by a correspondent that FX options were unlikely to be granted an exemption under Dodd-Frank. My puzzlement came from the understanding that FX options were never going to be exempt… One only had to have asked anyone in the banking industry the question over the past year and the answer would always have been the same – “no way”. Indeed I wrote in my Profit & Loss column in the December 2009 issue of the “general acceptance that FX options will not be exempt”.

The fact is that explaining why FX spot, forwards and possibly even swaps are not derivatives (swaps being a direct relative to money market loans and deposits, rather than a derivative of them) is a far easier proposition that explaining why an option is not an option. There has been an acceptance in the industry (at least among the people that I have been speaking to) that FX options were always going to have to be given up. The real battle was about swaps and possibly NDFs, and then spot and forwards.

Politically, in the US especially, one feels that the US Treasury, if it does adhere to Treasury Secretary Timothy Geithner’s statement last year that “FX is different”, has to give something to the CFTC-bloc that believes nothing should be exempt. It’s an old fashioned trade-off.

So, there we have it. Is the chatter a reflection of an industry bursting, like a child at Christmas, to open the box and find out what is inside, or do people really know that an announcement is imminent? The nice thing about this particular occasion (and this is the third date I have been given this year that is “definitely” or “hopefully” going to produce an announcement) is that at least this time next week we will know. Or we won’t.

So, this could be my last column in the current environment. Next week, everything could look a whole lot different…Or it might not…

Profit & Loss

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