Foreign Exchange Disclosures (Terms and conditions of FX Dealing)

Reporting practices in relation to “FX Swaps”

Recent European regulatory guidance on the reporting of FX products under European regulation has resulted in changes to reporting practices in relation to certain FX forward, FX swap and FX spot transactions Deutsche Bank enters into with customers. A fuller discussion of the background to this is set out in a notice prepared by the European Venues and Intermediaries Association (EVIA), but we summarize and apply the key points below. In the past the label “FX Swap” was applied loosely by market participants to situations which might include two FX forward transactions entered into at the same time (the vast majority of such transactions) or a single FX transaction with two payment legs (a minority of such transactions). This resulted in a wide divergence in reporting practices across the industry. European regulatory authorities have expressed a desire for greater consistency of reporting of FX forward, FX swap and FX spot transactions amongst market participants. In general:

  • Under European law, FX forwards are defined as “physically settled OTC derivative contracts that solely involve the exchange of two different currencies on a specific future date at a fixed rate agreed on the trade date of the contract covering the exchange” which are not FX spot transactions, and in line with applicable guidance should be reported as FX forwards;

  • Under European law, FX swaps are defined as “physically settled OTC derivative contracts that solely involve an exchange of two different currencies on a specific date at a fixed rate that is agreed on the trade date of the contract covering the exchange, and a reverse exchange of the two currencies at a later date and at a fixed rate that is also agreed on the trade date of the contract covering the exchange” and in line with applicable guidance should be reported as a FX Swap;

  • An FX strategy, in this context would represent a simultaneous and contingent execution of two FX transactions, which if they both comprised FX forwards would be reported as linked FX forward transactions; and

  • Under European law, for most purposes, FX spot is a contract for the exchange of one currency against another currency, under the terms of which delivery is scheduled to be made within 2 trading days or the period generally accepted in the market for that currency pair as the standard delivery period, and is not reported under European regulation.

Deutsche Bank’s general practice in relation to reporting of FX transactions under European regulation has changed to reflect the above delineation and guidance. The effect of this is that most transactions colloquially termed “FX Swaps” will now be reported as a FX strategy, unless Deutsche Bank executes an FX Swap (as defined above, a single transaction) with a customer; and where a FX strategy comprises one or more FX spot transactions, only transactions which constitute FX forwards shall be reported.

Deutsche Bank’s assumption will be that where customers have reporting obligations of their own, they will follow similar practices in relation to their reporting of such transactions.