MFA Submits Comments to European Commission Consultation Paper "FX Financial Instruments"

The Managed Funds Association ("MFA") submitted comments to the European Commission of the European Union ("EU") on its consultation paper on FX Financial Instruments. In the letter, the MFA states, among other things, that complying with different regulatory regimes on a cross-border basis is becoming increasingly challenging, and stated that international coordination is of "paramount importance" to ensure that regulatory overlaps are avoided.

The MFA recommended that the EU align its definition of "spot FX" with the CFTC's definition, which the MFA believes follows market practice. Furthermore, the MFA recommended that the EU create a "broadly harmonized" approach with respect to the U.S. exemption for FX forwards and FX swaps from certain requirements, including central clearing and exchange trading. The MFA strongly recommended that FX spot contract definition contain a settlement period of T+2 (two business days), but include exemptions for (i) spot FX instruments that have a longer settlement period as a result of market customs governing trading in those instruments, and (ii) FX transactions entered into in connection with the purchase or sale or exercise (for cash settlement) of a security, commodity or other instrument, the settlement of which will occur in a foreign currency. Additionally, the MFA recommended the payment-versus-payment settlement model, which the MFA notes has reduced settlement risk within FX markets.

See: MFA Comment Letter.