EU watchdog chief sees no clearing requirement for forex
LONDON, April 17
LONDON, April 17 (Reuters) - Foreign exchange dealers won't face the added cost of having to clear some currency trades if the European Union decides they must come under new EU rules to make derivatives markets safer, a top regulator said.
The bloc's executive European Commission is deciding whether part of the $5.3 trillion a day foreign exchange market should be legally defined as derivatives under the bloc's laws.
This would trigger new regulatory requirements, such as mandatory reporting of trades, which began in February.
Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), an EU watchdog that is enforcing the new derivatives rules, said forex trades deemed to be derivatives would have to be reported.
"But personally, I don't expect there to be any clearing requirement for forex derivatives in the forseeable future," Maijoor told Reuters on Wednesday.
In clearing, a trade is passed through a third party that is backed by a default fund to ensure completion of the transaction, even if one side goes bust.
Etay Katz, a financial services lawyer at Allen & Overy, said it was "good news" on the clearing side, but there would still be questions about whether forex derivatives would have to comply with other aspects of the new EU rules.
Some national laws in the EU say that forex contracts which take several days to settle are derivatives, while in Britain, the bloc's biggest forex trading hub, such trades are not considered derivatives.
Mandatory reporting of derivatives began in mid-February.
"Reporting systems are already done and dusted and dealers could now have to include another category," Katz said.
Tighter regulation of the currency market is looking more likely in any case as more than 30 traders have left banks or been suspended during regulatory probes into whether daily "fixings" in the largely unregulated market have been rigged. (Reporting by Huw Jones; Editing by Ruth Pitchford)