Executable orders taking priority over last look in FX, says BoE

Market participants may finally be changing their attitudes towards the controversial practice of last look.

The Fair and Effective Markets Review (FEMR) was published approximately 12 months ago to conduct a comprehensive and forward-looking assessment of the way the wholesale Fixed Income, Currency and Commodities (FICC) markets operate and help to restore trust in those markets. The report included guidance on market practices where there could be scope for misconduct, such as last look.

According to Bloomberg News, which reported on the findings, last look gives a market maker time to back out of a trade. That means a bank or proprietary trading firm could unfairly learn a counterparty’s intentions without having to complete the trade.

One year on, the Bank of England reports that some currency trading platforms have changed their matching rules to prioritise executable orders over last look liquidity.

While this development will undoubtedly be welcomed by market participants, trading platforms such as ParFX banned last look long before the FEMR’s recommendations was published.

According to Dan Marcus, chief executive officer, last look may not be appropriate in a market of natural interest and price discovery. “While last look isn’t bad per se, it is contrary to the principle of stable and firm pricing, and potentially leaves the door open for disruptive trading practices, such as the creation of a liquidity mirage or an unclear picture of market depth, to occur,” he says

However, the platform does not believe banning last look is the way forward. “Flexibility in execution is key in differing market conditions with different participants and last look still has a role to play in today’s currency markets, albeit increasingly limited. Ultimately, the market will evolve and decide what practices to carry forward – subject to any regulatory requirements – over the next decade and what to discard,” he adds.

The FEMR Implementation Report is available on the Bank of England’s website and can be read here.

 

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