The Department of the Treasury issued a final determination that exempts foreign exchange forwards and foreign exchange swaps from the definition of swap under the Commodity Exchange Act, effective upon publication in the Federal Register. This determination means that, among other things, commodity pool operators will not need to include foreign exchange forwards and foreign exchange swaps when determining whether they meet the 4.13(a)(3) trading limitations for purposes of the de minimis exemption from commodity pool operator registration. Foreign exchange forwards and foreign exchange swaps are still subject to the Commodity Futures Trading Commission’s trade-reporting requirements, anti-evasion authority and business-conduct standards.

A foreign exchange forward is a transaction that solely involves the exchange of two different currencies on a specific future date at a fixed rate agreed upon on the inception of the contract covering the exchange. A foreign exchange swap is a transaction that solely involves (i) an exchange of two different currencies on a specific date at a fixed rate that is agreed upon on the inception of the contract covering the exchange and (ii) a reverse exchange of those two currencies at a later date and at a fixed rate that is agreed upon on the inception of the contract covering the exchange. Foreign exchange or currency transactions that do not fit into one of these two exempt categories (other than spot transactions and currency options traded on a national securities exchange) are not effected by this determination and are swaps for all purposes under the Commodity Exchange Act, including 4.13(a)(3) determinations.

Please contact an attorney in the Investment Management Group at Seward & Kissel if you have any questions regarding this determination.