The Treasury secretary has no plans to exempt certain types of foreign exchange options from heavy new regulations, sources familiar with the matter said, dashing hopes of financial players and corporations who use the products to hedge currency risks.
Foreign exchange derivatives, in general, are a multitrillion-dollar market and are used by all types of companies to lock in prices to protect themselves from swings in currency exchange rates.
The Dodd-Frank Wall Street reform law gives the Treasury secretary the power to exempt the more commonly used foreign exchange swaps and forwards from new rules being developed by the Commodity Futures Trading Commission.
Treasury Secretary Timothy Geithner is poised to issue a decision on the matter soon.
Some experts say the law is unclear about whether Geithner has the power to exempt options on those contracts, a relatively narrow group of products also used to hedge currency risk.
Two sources familiar with his decision-making process say Geithner has no plans to exploit the vagueness in the law and call for an exemption of options on foreign exchange swaps, which allow market players the right, but not the obligation, to enter into a forward or swap down the road.
(Reporting by Sarah N. Lynch and Rachelle Younglai; editing by John Wallace)