On May 16, the UK Prudential Regulation Authority published the minutes (Minutes) of a Foreign Exchange Joint Standing Committee meeting held on April 22.

Notably, the Minutes summarize a presentation given by the Financial Conduct Authority (FCA) as to the application of best execution obligations under the Markets in Financial Instruments Directive (MiFID) to foreign exchange (FX) derivatives and FX spot transactions. The FCA noted that FX derivatives, and FX spot transactions that are ancillary to transactions with financial instruments, are already covered by MiFID best execution obligations. However the FCA also confirmed that for all other FX spot transactions outside the scope of MiFID, the obligations owed vary according to the trading relationship between market participants and clients. The FCA noted the following three broad categories of trading relationships and confirmed that:


Where market participants act as agent for clients and execute orders on their behalf, with a responsibility to obtain an “optimal outcome,” the FCA considers that “best execution” principles are “an appropriate benchmark.”


Where market participants act as principal and provide two-way quotes to clients and clients are able to obtain quotes from other market participants, no best execution requirements arise.

Principal With Some Discretion

Where market participants act as “principal with some discretion” and where clients could be found to be legitimately relying on them, market participants have obligations to attempt to achieve an “optimal outcome.” The FCA noted that managing stop-loss orders could be a potential example in the context of this trading relationship.

A copy of the Minutes is available here.