Direction of travel on last look becomes clear

Hold time holdouts likely to fall into line in face of increased regulatory scrutiny

Over the past two-and-a-half years, we’ve written a lot on the topic of last look and have often felt overwhelmed by the prospect of trying to compare the trading practices of different liquidity providers (LPs). 

For starters, not every LP used everyday language when writing their last look trading disclosure. 

Rather than allowing market participants to easily understand what their policy entails from a quick glance, some LPs have preferred to keep their trading practices obscured behind language more akin to a first-class dissertation from a prestigious university – leaving the reader feeling like they might need to attend a night class just to understand what is going on. 

Getting to the stage where you were able to read a disclosure was often tricky in itself, as not every LP effectively signposted where on their website they could be found, even after some strenuous Googling. 

Even when you managed to get hold of a trading policy and muddled your way through the language, you might have been dismayed to discover that the policy you were reading was actually five years old – leaving you none the wiser as to what that LP’s last look policy is like today. 

All of this has meant that trying to work out the last look policies of various LPs over the years has been a tough task. 

However, the introduction of standardised dealing disclosures late last year has, mercifully, improved matters, and the transparency has already helped clarify how LPs approach additional hold times. 

While many LPs have historically placed an additional hold time on top of last look checks to monitor client behaviour, recent comments from the UK Financial Conduct Authority and the former chair of the Global Foreign Exchange Committee have made it clear that such practices are deemed a breach of the FX Global Code. 

At least four LPs have now publicly ditched the hold time they previously applied to client trades subject to last look – Citi, Goldman Sachs, Morgan Stanley and UBS – as set out in their recent GFXC disclosure sheets. NatWest Markets has retained its 25 millisecond hold time for now, but says it will look to update its policy in the coming months.

While there was disagreement late last year about the possibility of retaining hold times in the face of the GFXC comments, the subsequent removal of hold times by such prominent LPs means it would be a surprise if other market-makers did not follow suit. 

So, the direction of travel on last look appears clear. Anyone left clinging to the trading policies of the past needs to adapt or face greater regulatory and public scrutiny.

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