The FX Swaps conundrum for multi-jurisdictional firms.

 

Major financial centres from across the world are harmonising their derivatives reporting requirements in accordance with IOSCO’s CPMI technical guidance on critical OTC derivatives data elements (other than the UTI and the UPI), the CDE. Australia, Singapore the UK, the EU went live with their implementation of the CDE in 2024, while Canada has done so in 2025.

As these jurisdictions harmonised their data reporting requirements, there was hope that similar products traded across jurisdictions would be reported in much the same way. This however has not come to pass and nowhere is this more evident than in the case of physically settled FX Swaps.

 

Physically settled FX Swaps – A primer

In very broad strokes a FX swap is exactly what it says on the tin. 2 parties agree to exchange (swap) a specific amount of currencies, at specific prices in the future. These swaps come in 2 flavours:

  1. The Spot – Forward Swap

Counterparty A exchanges X amount of Euros for Y amount of USD with Counterparty B at the spot market price with the spot leg (or near leg) of the trade settling within 2 business days, while Counterparty A will receive back its Euros and Counterparty B its USD at a predefined price sometime in the future (the forward leg or second leg).

LegCounterparty A sideCounterparty B SidePriceSettlement Date
Spot (first leg)Pays EUR Receives USDPays USD Receives EURSpot MarketWithin 2 business days
Forward(second leg)Pays USD Receives EURPays USD Receives EURForward Price 1 Future date 1
  1. The Forward – Forward Swap

As before, Counterparty A exchanges X amount of Euros for Y amount of USD, but this time price is a predefined forward price, and the first leg settles in the future (beyond the 2 business days threshold). The second leg unwinds the first leg and is itself executed in the future (usually at a later date than the first leg) and at a price different than the price for the first leg.

LegCounterparty A sideCounterparty B SidePriceSettlement Date
Forward 1 (first leg)Pays EUR Receives USDPays USD Receives EURForward Price 1Future date 1
Forward 2 (second leg)Pays USD Receives EURPays EUR Receives USDForward Price 2 Future date 2

Reporting requirement across jurisdictions

EU and the UK

Both the EU and the UK require that an FX Swap (either Spot – Forward or Forward – Forward) be reported in a single line as explained by ESMA in their Guidelines for EMIR REFIT reporting and by the FCA when the Authority adopted an ESMA Q&A. The representation is as follows for Swaps (either Spot-Forward or Forward-Forward)

Number of ReportsReporting CounterpartyContract TypeDirection of Leg1Direction Leg2Exchange Rate Forward Exchange rate Unique Product IDPackage IdentifierPackage Spread
1Counterparty ASwapPayerReceiverForward Rate 1Forward Rate 2UPI-B
1Counterparty BSwapReceiverPayerForward Rate 1Forward Rate 2UPI-B

 

Australia

In Australia in accordance with ASIC Derivative Transaction Rules (Reporting) 2024 and associated technical guidance, an FX Swap is reported as 2 reports, one for the near leg  and another for the far leg, linking the 2 reports using the Package Identifier elements. As such, reporting entities need to submit 2 reports for a FX Swap (one for the near leg and another for the far leg), see below a representation for a Forward-Forward Swap report for ASIC.

Number of ReportsReporting CounterpartyContract TypeDirection of Leg1Direction Leg2Exchange Rate Forward Exchange rate Unique Product IDPackage IdentifierPackage Spread
1Counterparty ASwapPayerReceiver Forward Rate 1UPI-BID123Swap points*
2Counterparty ASwapReceiverPayer Forward Rate 2UPI-BID123Swap points*
1Counterparty BSwapReceiverPayer Forward Rate 1UPI-BIDABCSwap points*
2Counterparty BSwapPayerReceiver Forward Rate 2UPI-BIDABCSwap points*

*Swap points are calculated as the rate of the far leg minus the rate of the near leg. Swap points can be a negative or positive number.

 

Singapore

MAS in its FAQs on reporting has taken yet another approach. MAS emulates the 2-line reporting approach as Australia, however, it adds its own twist.

Where Counterparties are mandated to report each leg of the swap separately (be it a spot-forward or a forward-forward) the 2 legs need to be linked with the swap-link field (unique for MAS)  while as per MAS FAQs the package identifier field should be populated to identify other types of packaged trades to connect two or more derivatives contracts that are negotiated together under a single economic agreement (e.g. a swaption) but are reported separately.

Number of ReportsReporting CounterpartyContract TypeDirection of Leg1Direction Leg2Exchange Rate (in Singapore doubles as the forward exchange rate)Swap LinkUnique Product IDPackage Identifier
1Counterparty ASwapPayerReceiver Forward Rate1ABCDUPI-B
2Counterparty ASwapReceiverPayer Forward Rate2ABCDUPI-B
1Counterparty BSwapReceiverPayer Forward Rate11234UPI-B
2Counterparty BSwapPayerReceiver Forward Rate21234UPI-B

 

Canada

The Canadian implementation of the CDE as per the CSA Technical Manual is closely aligned with the USA’s CFTC implementation of the CDE. In the US implementation, FX Swaps are reported in 2 separate transactions linked with the Package Identifier fields (similar to Australia). As such, we can readily assume that, in the absence of additional guidance by the CSA’s, reporting entities in Canada will report FX Swaps much like the same way as Australia see representation of a Forward-Forward Swap report below.

Number of ReportsReporting CounterpartyContract TypeDirection of Leg1Direction Leg2Exchange Rate (in Canada doubles as the forward exchange ratee)Unique Product IDPackage IdentifierPackage Spread
1Counterparty ASwapPayerReceiverForward Rate 1UPI-BID123Swap points*
2Counterparty ASwapReceiverPayerForward Rate 2UPI-BID123Swap points*
1Counterparty BSwapReceiverPayerForward Rate 1UPI-BIDABCSwap points*
2Counterparty BSwapPayerReceiverForward Rate 2UPI-BIDABCSwap points*

 

Additional issues – The UPI problem

As we’ve seen in the previous sections, all jurisdictions require reporting counterparties to report FX Swaps (either Spot-Forwards or Forward – Forwards) with their own distinct UPI that characterises the Swap. Much to the reporting parties dismay ANNA DSB specs do not currently allow reporting parties to generate UPIs for the specific case of a Spot-Forward Swap as the UPI is limited to the generation of Forward-Forward Swaps. As such, given that the overwhelming majority of FX Swaps traded are not listed on Exchange, they require to be reported with a UPI in their respective jurisdictions. This creates a problem across the board for reporting entities in Australia, the EU, the UK, Canada and Singapore considering that currently UPIs for Spot-Forward Swaps cannot exist and reporting parties resort in approximating the UPI.

 

Additional issues – Established market practices

Irrespective of how Securities Commissions in Canada/Australia/EU/etc. require FX Swaps to be reported, the established practice on the ground by many market participants is to report FX swaps as forwards. Market participants assume that a forward-forward swap is composed of 2 forward trades. For spot – forward swaps since the spot/near leg is not classified as a derivative (due to physical settlement within 2 business days) firms consider that the spot – forward swap can be reported as a single forward trade.

We at MAP Fintech consider that the established practice is incorrect, if the swap is confirmed in a single confirmation (or single contract) e.g. a single ISDA confirmation for both legs of the swap then it must be reported as a swap. If on the other hand the 2 legs of a given FX operation (e.g. a Forward near and a Forward far leg) are confirmed in 2 separate confirmations (e.g. 2 ISDA confirmations) then reporting parties may be justified (with several caveats) in reporting the 2 confirmed trades as 2 forwards.

 

Disclaimer: This blog was written by MAP FinTech’s Market Infrastructure Team and under no circumstance does it replace advice or guidance by Firms’ compliance and/or risk management functions. Firms affected by the topics discussed in this blog should consult with their compliance/risk management personnel and or consultants for specific guidance and must not rely on the information contained herein.

 

Contact our team of experts for more information or any assistance you may require.

 

Contact us