MiFID II – FX Forward Contracts Confirmed as Out of Scope

The European Commission (EC) has now published the delegated acts supplementing the second Markets in Financial Instruments Directive (MiFID II) made in 2014.

From a regulatory perspective, the publication was eagerly awaited, particularly for clarification on the extent to which FX forward contracts would remain in or out of scope for MiFID II. It had been anticipated that the EC would prescribe a cap on the tenor of FX Forwards and then designate as regulated products, contracts with settlement dates in excess of the cap. Such concerns have proved to be unfounded.

Overall there are 3 points in the text which we think will be of particular interest to foreign exchange brokers.

  1. The EC has determined that FX Forward contracts remain outside the scope of MiFID II if they satisfy all of the following conditions:
    • The contract for deliverable FX is physically settled
    • At least one of the parties to the contract is a non-financial counterparty
    • The purpose of the contract is to facilitate payment for identifiable goods, services or direct investment
    • The contract is not traded on a trading venue  

  1. In contrast, the delegated acts confirm that balance sheet hedging instruments such as non-deliverable FX forward contracts, FX options and currency swaps, are regulated products. This is because, typically, their purpose is not to facilitate payment for goods and services. (Recital 13 notes that neither an option nor a swap could be regarded as a spot contract or as a means of payment.) Consequently, these instruments are within scope of MiFID regulation.

  2. Of less significance, but still important to note, is that the EC has been prescriptive in the settlement periods that are to apply to spot FX contracts by identifying ‘major’ currencies. Contracts involving major currency pairs are to be settled within two trading days. The settlement period stipulated for contracts involving a ‘minor’ currency is longer than 2 trading days – or the period generally accepted in the market for that currency pair. The major currencies are: EUR, JPY, GBP, AUD, CHF, CAD, HKD, SEK, NZD, SGD, NOK, MXN, HRK, BGN, CZK, DKK, HUF, PLN, RON. 

The full text of the delegated acts is available at:


We trust this information will be of use in your regulatory planning.  If you have any questions about this information, please do not hesitate to contact me.

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