ABA, its ABA Securities Association subsidiary and two other trade groups this week asked the CFTC to use its Commodity Exchange Act authority to exempt nondeliverable foreign exchange forwards (NDFs) so that they’re regulated the same as foreign exchange forwards and swaps.
The trade groups noted that the Treasury Department in November issued a final determination that exempted foreign exchange swaps and forwards from certain Dodd-Frank Act rules that apply to swaps generally. “[W]e believe NDFs should receive the same regulatory treatment as FX forwards. An NDF is economically and functionally the same transaction as an FX forward,” they said.
The trade groups argued, among other things, that facilitating the hedging of deliverable currencies by exempting deliverable FX forwards, while increasing the costs of hedging restricted currencies by not similarly exempting NDFs serves no discernible public policy purpose.
“Exemptive relief for NDFs would promote responsible economic and financial innovation by allowing this important market to continue to use and develop market infrastructure designed specifically to meet the unique needs of FX transactions,” they said.
Read the letter.