Dodd-Frank talks about the swaps market as a whole – meaning all swaps. Sure, it breaks out securities based swaps and a few others, but the intention seemed to be that they wanted all swaps regulated. But as I much as I’m for the idea of not creating loopholes – intentionally or otherwise – its really hard to lump FX swaps in the same bucket as CDS and even IR swaps. Its just a different product with a different use, not to mention a product that sees the transfer of concrete assets – namely currency.
But all of that aside, its just too politically complicated to regulate FX. Countries (and Unions for that matter) are proud of – and control – there own currency. Putting specific regulations non those transaction in the US only might annoy not just traders but other central banks. It is possible that even though FX swaps had nothing to do with the world’s issues in 2008 they could have something to do with the next crisis, but it certainly seems unlikely. My comments in the FT on the topic:
“There are a lot of geo-political issues involved in the US trying to regulate currency trading,” said Kevin McPartland, senior analyst at Tabb Group. “In the end that’s what will lead Washington to exempt currencies as an entire asset class from their regulatory push.”