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Compound Growth

FX Forwards, EMIR and MiFID

March 2014:

One of the teething problems that arose with the implementation of EMIR’s trade reporting requirements was a lack of consensus as to what had to be reported.

How can that be? The regulations are surely quite clear. All derivatives must be reported. But what is a derivative? Surely the same as it is under MiFID. And therein lies the problem. MiFID was implemented at a state level. And different states have taken different views as to what is, or is not, a derivative.

Does it matter? One of the intentions of EMIR trade reporting is to create an infrastructure in which trades can be matched and their details agreed. That’s going to be hard to achieve if two counterparties simply aren’t reporting the same trades to begin with.

In February, ESMA wrote this letter ESMA/2014/184 to the European Commission asking for clarification. The European Commission’s response shared the concern and proposed a number of steps towards clarifying the situation. They agreed that the delineation between spot and derivative contracts should be clarified. But they also noted that ‘the notion of ‘the commercial purpose’ of the conclusion of a derivative contract is only foreseen as a criterion for physically settled commodity derivatives contracts...’ In other words, it would not be a relevant consideration for FX business.

This may be awkward for firms engaging in unregulated commercial foreign exchange activities in the UK where such business has traditionally been unregulated.

Compound Growth will be monitoring the situation. If you would like to be kept informed, please send an email to or contact us.