In response to industry feedback, the Global Foreign Exchange Committee ("GFXC") will revise its treatment of "last look" trading practices in the FX Global Code (the "Code"). The Code defines "last look" as a practice used in trading on electronic platforms whereby a quote provider receiving a trade request has a final opportunity to accept or reject the request against its quoted price.
The update pertains to Principle 17 of the Code, which provides generally that "Market Participants employing last look should be transparent regarding its use and provide appropriate disclosures to Clients." Principle 17 also provides in part that it is "likely inconsistent with good market practice" to trade during a "last look" window using client information because it may give away that information to the market. In light of feedback, the GFXC has now concluded that Principle 17 should provide a flatter statement that market participants should not trade based on information from a trade request during the "last look" window. The GFXC also determined that Principle 17 should clarify conditions that allow for certain "cover and deal" trading (essentially riskless principal trading) arrangements to be distinguished from the "last look" restrictions.
The GFXC noted that it is commissioning work to determine whether enhancements to the Code are necessary in relation to cover and deal arrangements, as well as disclosures regarding "last look" on anonymous electronic trading platforms.
Commentary / Jeff Robins
The GFXC intends to share finalized language with local FX committees and then publish the language before the end of the year. Many dealer and platform providers have already adjusted hedging and execution practices based on the original Code. Nevertheless, it will be important for both adherents and non-adherents to carefully review the new language when it is published and potentially revisit these policies. In addition, market participants who have previously given public statements of commitment to the Code should consider whether and when to update those statements to recognize the revised principles.
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