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FX Transaction Cost Analysis

What do the Regulators say about FX TCA?

regulators graph
The FX market trades $4 trillion every day, but is not regulated by any government agency. In the absence of a global regulating body, some agencies have attempted to lend their weight. Regulatory requirements driven by the US Securities and Exchange Commission's (SEC) rule require “best execution” under which investment professionals must seek the best transaction terms reasonably available. (Exchange Act release no. 23170, 1986).

The European Union’s Markets in Financial Instruments Directive (MiFID) also contains best execution requirements, but goes one step further requiring that providers present detailed trade information to their clients including trading price, venue and time of execution.

Despite these execution requirements, FX is simply not an asset included in either regulation, leaving those who overpay with little or no recourse. Sell-side FX providers are not obligated to deliver best execution, so the responsibility for achieving fair and competitive pricing falls on the buy-side.

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