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MiFID: approach to rolling spot forex clarified

The European Commission has published a new answer in its Q&As on the Markets in Financial Instruments Directive (MiFID).  This is about whether a rolling spot foreign exchange on margin takes the form of a derivative contract or a contract for difference to be considered a financial instrument under MiFID.

The Q&A explains that as opposed to spot trading where there is immediate delivery, rolling spot forex contracts can be indefinitely renewed and no currency is
actually delivered until a party affirmatively closes out its position.  This exposes both parties to fluctuations in the underlying currencies.  As a result, rolling spot forex contracts are a type of derivative contract (I.e. either a forward or a financial contract for difference) relating to currencies and are considered a financial instrument as defined under MiFID.

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