MAR extension to spot FX market needs further analysis, says ESMA

Further analysis is required once the review of the FX Global Code of Conduct is finalised before spot FX is included under the market abuse rules, ESMA has said.  

More analysis is needed before the European watchdog makes its decision on whether spot FX should be in scope of Market Abuse Regulation (MAR), the European financial watchdog has said.

The European Securities and Markets Authority (ESMA) stated in its review of MAR that it had considered the size and global nature of the spot FX market, as well as the enforceability and progress of the FX Global Code of Conduct over recent years.

“It is appropriate to further analyse the suitability of setting-up an EU regulatory regime on market abuse on FX spot contracts, taking into account the FX Global Code of Conduct currently under revision,” ESMA said.

In October last year, ESMA confirmed it would be assessing whether spot FX transactions, which are currently out of the scope of MAR and MiFID II, should come under the market abuse rules, which were introduced over three years ago.

“There might be a regulatory gap in the area of spot FX contracts, due to the absence of a regulatory coverage in the EU with respect of misconducts carried out in these markets, together with the fact that the Code, by its own nature, is not enforceable,” ESMA said at the time.

The decision in October to review the scope of the regulation was met with opposition from market participants, particularly the buy-side, who claimed that the inclusion of spot FX under MAR would be ineffective and detrimental.

“We see no overriding need to extend the scope of MAR to include spot FX contracts: Spot FX is so liquid that there is limited scope for inside information and its global nature would mean that the imposition of EU rules may be ineffective, or detrimental,” said the Investment Association, representing members managing more than £7.7 trillion of assets, in its October response.

“The widespread adoption of the FX Global Code of Conduct would render any such extension, to a large extent, redundant.”