GFXC Seeks Feedback on Pre-Hedging, Last Look Guidance

The Global Foreign Exchange Committee has released two draft “guidance papers” on pre-hedging and last look and is seeking feedback from the FX industry, however it stresses the papers are not intended to presage a re-write of Principles 11 and 17 in the FX Global Code, rather they are intended “to promote wider knowledge and understanding of these practices and highlight how they relate to the FX Global Code’s existing principles for good practice in these areas.”

When the final guidance is agreed, the GFXC says the two papers will not become part of the Code itself, but are intended to be read alongside. This reinforces what has been a consistent message from the GFXC over the past 18 months, although it is seen in some circles as a compromise that is required because the committee has not been able to achieve consensus, especially on last look.

The timing of the papers is propitious as the FICC Markets Standards Board, which is largely focused on Europe but provides best practices that complement the Code, with emphasis on fixed income markets, has just published a Standard on Large Trades, which focuses in on pre-hedging. Sources familiar with the matter say the publication of the Standard and the draft guidance paper, offer an opportunity to align two important codes in FICC markets.

The guidance papers outline the expectations that market participants should have in regards to the usage of pre-hedging and last look, as well as the controls and disclosures that could help align practices with the Code. They have been developed by Working Groups that brought together a globally diverse range of market participants, including participants from both the buy-side and sell-side.

Feedback on the draft guidance papers is sought by 31 May 2021. After considering the feedback received, the papers will be finalised for approval by the GFXC at its June 2021 meeting, following a fatal flaw review by the local FXCs. The final versions of the papers will be published shortly after.

Simultaneously, the GFXC is currently reviewing the responses to its earlier request for feedback on the other focus areas for its three-year review of the Code (anonymous trading, algorithmic trading and transaction cost analysis, disclosures and settlement risk). The deadline for feedback on those was last Friday (May 7) and proposals will also be finalised for approval at the GFXC’s June meeting.

The draft paper for pre-hedging can be accessed here and that on last look here.