So they decided to exclude FX derivatives from the requirement to clear centrally. A case study in unintended consequences?
The effect of a pair of interest rate swaps can be synthesised through a non-deliverable FX forward trade combined with a long dated cross currency swap. So if a bank chooses to trade a synthetic IR products as an FX derivative structure, they are able to
completely bypass Dodd-Frank, and avoid the costs of CCP membership, margin collateral and infrastructure consequences.
So at a stroke this decision will drive interest rate swaps, the largest portion of the OTC market, out of the reaches of the legislation. Is that really what they wanted? I don't think so.