CFTC Clarifies Views on Regulatory Treatment of Foreign Exchange Products

The Commodity Futures Trading Commission (CFTC) released an interpretive letter providing views on certain foreign exchange (FX) transactions.

The letter (CFTC Letter No. 25-10) delivers the views of the CFTC’s Market Participants Division and Division of Market Oversight on the characterization of certain FX transactions as being swaps, FX forwards or FX swaps, as defined in the Commodity Exchange Act, the Commission said in a Thursday (April 10) press release.

Highlighting details of the letter, the CFTC said in the release that Window FX Forwards should be considered to be “foreign exchange forwards” and Package FX Spot Transactions should not be considered to be “foreign exchange swaps” or “swaps.”

In the letter, the two divisions said they issued this interpretation to “clarify the Divisions’ views on the regulatory treatment of certain commonly traded foreign exchange products.”

They added that the interpretations represent the views of the divisions and may not represent those of the CFTC or any other government agency.

The divisions offered their views on Window FX Forwards because they were told by market participants that there was uncertainty about the products’ regulatory treatment, according to the letter.

“The Divisions understand that some market participants are treating Window FX Forwards as foreign exchange forwards and some are treating such transactions as swaps,” the letter said. “According to market participants, treating such transactions as swaps imposes significant costs on access to this product for Main Street businesses involved in cross-border commerce.”

In the case of Package FX Spot Transactions, the divisions said in the letter that they “understand from market participants that it would be beneficial to clarify the treatment of certain foreign exchange transactions involving settlement on a spot timeframe, i.e., within T+2.”

In another recent move, the CFTC said March 28 that it withdrew two advisories: one on the review of risks related to clearing digital assets, and the other on virtual currency derivative product listings.

The CFTC said it did so to ensure that it does not suggest that its regulatory treatment of digital asset derivatives will differ from that of other products, and because of additional staff experience with virtual currency derivative product listings and increasing market growth and maturity.