Debelle: last look will not be banned

GFXC head says market participants have a choice of whether to use a liquidity provider that employs the practice

Guy Debelle: some of the largest firms have yet to sign up to the Code because they do not view it as a priority

The head of the industry body tasked with overseeing the FX Global Code of Conduct says last look will not be banned, despite some market participants apparently delaying signing the principles-based document because of the practice’s continued use.

“We aren’t going to ban last look. You don’t have to use last look. There are plenty of other providers who don’t use last look. You have a choice,” says Guy Debelle, chairman of the Global Foreign Exchange Committee (GFXC). 

Referring to the results of a GFXC survey, carried out earlier this year and to be published in 2020, Debelle says only a vocal minority are concerned about the Code’s execution principles; two-thirds of respondents stated they did not want any changes made to the Code, which is due to be reviewed next year after being in place for three years.

The milliseconds-long last look window opens when a client order is received and it is the final opportunity to accept or reject a request against a market-maker’s quoted price. It allows the maker of the price to conduct appropriate risk controls, but not to gather information on which to trade.

Some banks use last look to pre-hedge incoming client trades. But distrust was generated in the spot market when several dealers were found abusing the period to front-run client trades or reject them if the market moved in a client’s favour prior to execution.

Hold times, as well as disclosures around the use of the practice, have been shown to vary across institutions, prompting some market participants to call for an end to the technique.

Going into 2020, the GFXC is attempting to get more buy-side buy-in for the Code, but Debelle says some of the largest firms have yet to sign up because they do not view it as a priority. This year, the GFXC will focus on working on ways to demonstrate to the buy side that the Code has had a positive effect on the functioning of the market since it was released in 2017.

The more sophisticated buy-side firms have thought about this and can develop their own metrics
Guy Debelle, Global Foreign Exchange Committee

One of those effects is transparency, which the Code has encouraged to aid best execution requirements and improve pricing.

Debelle believes the buy side will increasingly reach out for transaction cost analysis (TCA) – which can be provided independently or by liquidity providers – in 2020, because of the benefits it can have on the cost of execution.

Better information

Still, he thinks there is room for improvement regarding the information participants get through TCA, adding that the buy side should consider whether TCA comes from the same provider that executes the order or from another party.

“The more sophisticated buy-side firms have thought about this and can develop their own metrics, but I think it’s something that is coming more and more on to people’s radars, and I suspect that will continue to be so,” he says. “That’s when you start getting these questions [about] ‘should we be getting this from the same bank or should we be getting it from someone else?’ But until you actually start doing it, you don’t even start asking those questions.”

Nonetheless, Debelle says that even TCA provided from inside banks can be delivered independently: “Chinese walls work to a reasonable extent across banks. Not always necessarily perfectly, but if you have an independent middle office providing that separate from the front office, then there’s at least one degree of separation.”

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