Foreign exchange: FX clearing exemption could increase risk

On April 29 the US Treasury proposed exempting foreign exchange forwards and swaps from clearing and trading rules contained in the Dodd-Frank Act. The Global FX Division, a trade group representing the biggest users of foreign exchange, mainly banks, said at the time. "We very much welcome the US Treasury ‘proposed determination’, as moving FX swaps and forwards to centralized clearing will not only create additional costs for business users, but could also increase systemic risk." However, one influential financial market academic argues that the proposal to exempt FX might be a mistake, and could indeed foster systemic risk.