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Risk of Default in FX Swaps High

Professor argues for no exceptions in processing trades through clearinghouses.

By Matthew Leising | Updated on May 11, 2011

The risk of investor default in the foreign-exchange swap and forward markets is large enough to justify processing trades through clearinghouses, Stanford University professor Darrell Duffie said.

The U.S. Treasury Department in April proposed exempting the trades from most rules required by the Dodd-Frank Act, in part because default risk “is relatively small.” The law requires foreign-exchange swaps and forwards to be subject to clearing and trading rules unless Treasury decides the derivatives are different from other types of swaps.

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