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Am I the only one still confused whether FX forwards and swaps will be exempt from the various regulatory requirements under Frank and Dodd? It does not really matter whether the compliance deadline is already in the past (Oct 12, 2012) or still in the future (Jan 1, 2013) – what are we all supposed to comply with? The uncertainty and confusion are probably a bigger problem than any of the options.

There are already reports that some smaller non-US banks are turning down deals with US names to avoid regulatory risk and the costs associated with the US registration requirements. Admittedly, some of the reports come from interested parties such as ISDA, and the first to jump ship will probably be banks that do not do much US business in the best of times. So the existing or projected FX swap and forward market fragmentation is anyone’s guess. The only thing that is clear is that the fog of war has to settle, the sooner the better.

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