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7.2 Jurisdiction over OTC Derivatives

<< Title VII Overview

7.2 Jurisdiction over OTC Derivatives

The following links provide expanded analysis within this section:

7.2.      Jurisdiction over OTC Derivatives.  In addition to the Swap Push-out Rule, Title VII of the Act provides a comprehensive framework for the regulation, clearing, and exchange-trading of OTC derivatives.

                        7.2.1.    What OTC Derivatives are Covered?  The Act defines a "swap" broadly to cover most commonly traded OTC derivatives, including options on interest rates, currencies, commodities, securities, indices and various other financial or economic interests or property; contracts in which payments and deliveries are dependent on the occurrence or non-occurrence of certain contingencies (e.g., a credit default swap), and swaps on rates and currencies, total return swaps, and various other common swap transactions. [§721]

            The Act provides for an analogous set of definitions for "security-based swaps," which are generally swap transactions involving a single security or loan or narrow-based security index.  In broad terms, the CFTC will have jurisdiction over swaps and the SEC will have analogous jurisdiction over security-based swaps.

                        7.2.2.    Are Foreign Exchange Swaps and Forwards Still Excluded from CFTC and SEC Jurisdiction?  Foreign exchange ("FX") swaps and forwards will be considered "swaps" and subject to regulation under the Act unless the Treasury Secretary determines that such transactions should not be regulated under Title VII and have not been structured to evade the reach of the legislation.  Banks, dealers, and other institutions have traditionally been the primary participants in the FX swaps and forwards markets.  These markets have been exempt from regulatory oversight since a 1974 Treasury Department request (the so-called "Treasury Amendment") not to burden these participants with unnecessary regulation.  It is uncertain at this time whether the Treasury Secretary will determine that FX swaps and forwards should not be subject to Title VII.[§721]