Rethinking spot FX regulation

Abstract

It is widely accepted that spot foreign exchange (FX) represents immediate delivery for actual demands and commercial purposes. Regulatory exemption is a common practice for spot FX trading in every jurisdiction. This article explores the current regime for spot exchange and examines whether there exists any material regulatory void. By demonstrating that spot exchange has intrinsic investment attributes, we call for regulators to apply the market abuse regulation to currency trades for ensuring market integrity and investor protection in the foreign exchange market. We also stress the role of statutory regulation in controlling misconduct and market transparency. A heavy reliance on self-regulation is limited and will not help prevent the recurrence of the 2013 manipulation scandal. Further, given the global nature of FX markets, international coordination is of critical importance.