The Commodity Futures Trading Commission is meeting on October 9 to determine if non-deliverable forwards in 12 currencies should be centrally cleared. The NDFs in question include China’s yuan, Korea’s won and Brazil’s real.
The discussion will not affect the treasury exemption from clearing for foreign exchange forwards and swaps, granted under Dodd-Frank.
The CFTC has repeatedly delayed publication of new rules on mandated NDF clearing as its staff has been unable to deliver a proposal to the commission. The proposal was first expected in May, then June, and now backers hope that it will be agreed this week.
The CFTC’s inquiry is part of a broader range of FX market structure concerns centered around whether the currency markets are susceptible to manipulation by speculators. NDFs are often at the center of these concerns since regulators see them as less suitable for hedging than for speculation. However, in some currencies subject to various regulatory controls, NDFs can be the only game in town for hedgers.
The CFTC is taking action shortly after the European Securities and Markets Authority issued a consultation paper on the same topic with comments due by November 6. The currencies it is considering, and which LCH Clearnet has agreed to clear, are, “contracts with maturities between 3 days and 2 years, settled in USD, in the following 11 currencies: Brazilian Real (BRL), Chilean Peso (CLP), Chinese Yuan (CNY), Colombian Peso (COP), Indonesian Rupiah (IDR), Indian Rupee (INR), Korean Won (KRW), Malaysian Ringgit (MYR), Philippine Peso (PHP), Russian Ruble (RUB) and Taiwan Dollar (TWD). The 12th currency being considered by the CFTC is the Peruvian Nuevo Sol (PEN).