ESMA Chair Sees No Clearing Obligation for Forex Derivatives

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ESMA Chair Sees No Clearing Obligation for Forex DerivativesForex exchange traders can heave a sigh of relief if they are absolved from shouldering an additional cost of clearing certain currency trades if the European Union concludes that they should be incorporated into the new EU regulations that are intended to strengthen the derivatives markets.

The European Commission is currently debating whether to classify certain segment of the $5.3 trillion a day forex market as derivatives as per its laws. This will result in new regulations, such as the compulsory reporting of trades done, which started two months ago.

The mandatory filing of derivatives kicked off in mid-February.

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“Reporting systems are already done and dusted and dealers could now have to include another category,” said Etay Katz, a financial services attorney with Allen & Overy.

Forex trades that are classified as being derivatives will have to be reported, said Steven Maijoor, the chair of the European Securities and Markets Authority (ESMA), which is currently ensuring compliance with the derivatives laws.

“But personally, I don’t expect there to be any clearing requirement for forex derivatives in the forseeable future,” Maijoor was quoted by Reuters on Wednesday.

Clearing involves passing a trade through a third party supported by a default fund to make sure the transaction is completed, whether one party collapses or not. Katz said the move makes sense on the clearing part, though it still raises questions on whether the foreign exchange derivatives will need to satisfy other segments of the fresh EU rules.

In Britain, Europe’s largest financial market, the law doesn’t classify trades that take several days to be concluded as derivatives. However, some countries in the EU classify them as such. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com