New liquidity providers to drive out FX last look

By Rebekah Tunstead | 10 January 2020

New liquidity providers (LPs) are putting pressure on the market to move away from holding periods in the last look window on electronic spot FX trades, according to the head of futures and FX at OCBC Securities.

“Indirectly these [new players] are trying to differentiate their service, differentiate their pricing, and they are indirectly pushing for a reform in this market,” says OCBC’s Keeve Tan.

“Many LPs are going in the direction that if the price is shown, the price is good. If you hit it and you get it, then so be it. [Existing LPs] will have to manage the flows in other ways.”

Last look – the practice of examining the final details of a trade before it is executed, including changes in market price – remains a contentious issue. For those LPs who have millisecond holding windows – also referred to as speed bumps – times vary. But the impact of millisecond delays can rack up in low latency trading.

“On a daily basis I insist that my aggregation platform provider provides me with a daily report on which LP has helped my trade for which trade; what the average holding period is; and what is the roundtrip trade time that my trades get executed,” says Tan. “We analyse this data, and I get a monthly report on how much the LPs who hold our trades and later reject them, how much it costs us.”

In 2017, a group of central bankers and market participants introduced the FX Global Code – a set of voluntary principles to establish best practices in the FX market. Under principle 17 of the code, “market participants employing last look should be transparent regarding its use and provide appropriate disclosures to clients.”

In August 2019, Risk.net found that a quarter of the top 50 LPs did not publicly state their last look policies and over half have not published their holding times.

In response to increased debate, the Global Foreign Exchange Committee said on December 4, 2019 there were differing perceptions by the buy-side and sell-side of the practice of last look, and that there was a need to address the topic. 

“For the longest time [liquidity providers’] clients like ourselves have not been very firm in telling our LPs, ‘look, I’m not going to entertain last look, I’m not going to be okay with holding periods,’ simply because the market norm back then was that everyone had such practices. It very clearly only benefits LPs,” says Tan.

Singapore’s FX facelift

On January 6, BNP Paribas announced the launch of an electronic FX pricing and trading engine in Singapore. It follows commitments by JP Morgan, Citibank, and UBS to launch their own FX pricing and trading engines in the city state.

It is hoped the new engine will provide the bank’s clients with “better access to liquidity, more efficient price discovery and timelier trade execution,” said Christophe Jobert, head of global markets for Southeast Asia, BNP Paribas, in a press release.

For Tan, the move by the French bank will put pressure on others to improve their latency in Singapore and more broadly in Asia.

As part of the announcement, BNP Paribas said it will bring its single dealer platform, Cortex LIVE, to its Singapore clients. The platform uses artificial intelligence and natural language processing to give clients a real-time trading assistant.

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