On 20 March 2014 ESMA published the European Commission's (EC) response (dated 26 February 2014) to ESMA's letter of 14 February 2014 regarding the classification of financial instruments as derivatives. The response is that the EC shares the view that it is essential to have a consistent transposition of the relevant Markets in Financial Instruments Directive (MiFID) provisions to avoid the negative effects caused by the inconsistent application of the European Markets Infrastructure Regulation (EMIR) throughout the Union.

In order to determine:

- the delineation between FX forward contracts and currency spot contracts under MiFID, the EC requests that ESMA provides details of how the point in the annex to MiFID and the definition FX forward have been transposed by national competent authorities. The EC also asks for details of commonly accepted delivery periods for currencies in the Member States together with the developments in the foreign exchange markets since the implementation of MiFID; and

- the definition of commodity forwards that can be physically settled, the EC states that this is work in progress as part of the delegated acts for MiFID II on which ESMA will receive a mandate to advise and on which ESMA may wish to consider issuing guidelines.

The Financial Conduct Authority has also updated its "latest updates on EMIR" website to confirm that it intends to engage closely with the Commission and ESMA on these issues as their work progresses and will update market participants on any significant developments. In the meantime, and until further notice, the UK regulatory position remains the same.

Related links:

http://www.esma.europa.eu/news/EC-response-ESMA-classification-financial-instruments?t=326&o=home

http://www.fca.org.uk/firms/markets/international-markets/emir