The regulatory treatment of an FX forward turns on settlement and purpose
Table of Contents
1. Summary
Regulation depends on how the contract settles and what it is for. A physically settled FX swap or forward has a US exemption, and an EU contract can fall outside MiFID II by its delivery window or its purpose.
2. Detail
2.1. United States
The 2012 Treasury determination exempts FX swaps and forwards from the Commodity Exchange Act definition of a swap. They avoid mandatory clearing, mandatory trade execution and margin. They remain subject to trade reporting and to anti-manipulation rules. The exemption does not cover FX options, currency swaps or non-deliverable forwards.
2.2. European Union
Article 10 of Delegated Regulation 2017/565 excludes a spot contract, delivered within two trading days for major pairs. It also excludes a contract that is a means of payment, such as one used for identifiable goods, services or direct investment, if it meets all the conditions. The EMIR definition of a derivative refers to MiFID financial instruments, so an FX contract outside this exclusion can be an EMIR derivative.
3. See also
- FX forwards — the structure note.
- An outright settles before, on or after the spot date — completes: the delivery window.
- Deliverability and non-deliverable instruments — contradicts: the US exemption does not cover the NDFs described there.