Spot FX
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Spot FX is not a “financial instrument” within the scope of MiFID 2. See Article 10(2) of Commission Delegated Regulation (EU) 2017/565.
In a Nutshell™
Characteristics of other derivative contracts relating to currencies
For the purposes of Section C(4) of Annex I to 2014/65/EU (EUR Lex), other derivative contracts relating to a currency shall not be a financial instrument where the contract is: (a) a spot contract within the meaning of paragraph 2 of this Article [... blah blah blah]
By way of explaining why it is out of scope for MiFID 2, a spot contract is defined in Art. 10(2) of Commission Delegated Regulation (EU) 2017/565 as
- A spot contract for the purposes of paragraph 1 shall be a contract for the exchange of one currency against another currency, under the terms of which delivery is scheduled to be made within the longer of the following periods:
- (a) 2 trading days in respect of any pair of the major currencies set out in paragraph 3;
- (b) for any pair of currencies where at least one currency is not a major currency, the longer of 2 trading days or the period generally accepted in the market for that currency pair as the standard delivery period;
- (c) where the contract for the exchange of those currencies is used for the main purpose of the sale or purchase of a transferable security or a unit in a collective investment undertaking, the period generally accepted in the market for the settlement of that transferable security or a unit in a collective investment undertaking as the standard delivery period or 5 trading days, whichever is shorter.
- (a) 2 trading days in respect of any pair of the major currencies set out in paragraph 3;
- A contract shall not be considered a spot contract where, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the currency is to be postponed and not to be performed within the period set out in the first subparagraph.
Per Art 10(3), the “major currencies” are restricted to US dollar, Euro, Japanese yen, Pound sterling, Australian dollar, Swiss franc, Canadian dollar, Hong Kong dollar, Swedish krona, New Zealand dollar, Singapore dollar, Norwegian krone, Mexican peso, Croatian kuna, Bulgarian lev, Czech koruna, Danish krone, Hungarian forint, Polish złoty and Romanian leu.
Per Art 10(4), a trading day means any day of normal trading in the jurisdiction of both currencies to be exchanged and that of any third currency through which those currencies are converting for the purposes of liquidity and where the standard delivery period for the exchange of those currencies references that third currency’s jurisdiction.