The Dodd Frank Act had laid down comprehensive framework for regulating the over-the-counter swap market. Title VII of the Dodd Frank Act requires SEC and CFTC, in consultation with the Board of Governors of the Federal Reserve System, to define the terms "swap", "security-based swap", and "security-based swap agreement" and establish such regulations regarding "mixed swaps" as may be necessary to carry out the purposes of swap and security-based swap regulation under Title VII.
The Securities and Exchange Commission (SEC) by way of a press release dated 9th July, 2012, as a step to regulate the over-the-counter derivatives market has approved rules to determine what kind of derivatives products will be regulated under the new regime created by the Dodd Frank Act and interpretations of key definitions of certain derivative products. The rules have been jointly written by SEC and the Commodity Futures Trading Commission (CFTC).
The rules define the terms "swap" and "security-based swap," and whether a particular instrument shall be regulated by SEC or CFTC or both. As per the press release, transactions that will fall into the definition of swap or security based swap include foreign exchange forwards, foreign exchange swaps, foreign currency options (other than foreign currency options traded on a national securities exchange), non-deliverable forward contracts involving foreign exchange, currency and cross-currency swaps, forward rate agreements, contracts for differences, and certain combinations and permutations of (or options on) swaps and security-based swaps, instruments on interest rates and other monetary rates, total return swaps, Title VII instruments based on futures will be swaps or security-based swaps. On the other hand products like insurance, safe harbor, security forwards and consumer and commercial transactions will fall outside the definition of swap and security-based swap.
Once both SEC and CFTC adopt the final rules, they would become effective within 60 days from the date of publication in the Federal Register.