Currency Trader Moves to Curb Controversial ‘Last Look’ PracticeBy
Market maker says wider adoption would lead to fairer market
Company applies price check as soon as trade request received
XTX Markets Ltd., a computerized trading firm that’s one of the world’s biggest spot currency traders, is changing the way it handles last look, a controversial practice in foreign exchange that allows dealers to back out of losing transactions.
The London-based market maker has removed the holding time between when a client makes a trade request and when XTX either accepts or rejects the request, the company said in a statement. It hasn’t done away with last look entirely -- the firm can still carry out an immediate price or credit check before accepting trades.
The move by XTX, which has surpassed many of the world’s biggest banks to become the fourth-largest spot currency trader despite not employing any human traders, comes amid a fierce debate in the $5.1-trillion-a-day foreign-exchange market about the use of last look. A global committee of central bankers and industry members is seeking feedback on the practice, which critics say can be abused by allowing some firms to glean the intentions of other participants or halt unprofitable transactions.
Proponents say last look enables dealers to quote prices on a wider range of platforms and defend themselves against faster, more sophisticated traders. Barclays Plc agreed to pay $150 million in 2015 for misconduct relating to the practice.
The consultation on last look follows the release of the FX Global Code in May, a set of standards aimed at stamping out misconduct after a rate-rigging scandal led to billions of dollars of fines for banks in recent years. Trading that uses information from clients’ trade requests, including hedging during the so-called last look window, is “likely inconsistent with good market practice,” according to the code.
“With recent improvements in technology and market data, we believe that it is hard to justify the use of a latency buffer in pricing,” Zar Amrolia, co-CEO of XTX, said in a statement. “We hope the combination of adherence to the global FX code and the zero hold time practices of market leaders will reduce the impact of the problematic practices sometimes associated with last look.”
XTX handles about $65 billion a day across currencies, equities, fixed income and commodity markets, according to its website.
— With assistance by Annie Massa