OneZero Launches Last Look Analysis Tool

Following the release last month of the Global Foreign Exchange Committee’s guidance paper on last lookin FX markets, oneZero is rolling out an analytics package designed to help customers better understand the cost of rejects as a result of LPs’ last look protocols.

The analytics are available in oneZero’s Data Source Insights product, in which the firm says the Standard package reports show fill times by LP on a source of flow, size and/or currency pair basis to help clients more clearly visualise when and for how long the last look may be taking place.

The Advanced package enables clients to compare LPs with different last look approaches by taking into account estimates of the impact of the last look rejection on spreads, in addition to trade acceptance rates, when making their liquidity choices. The data can also be made available to clients’ own quant teams for them to make their own analysis.

Phil Weisberg, head of strategic partnerships and Planning at oneZero, says the analytics are designed to help customers better understand the relationship between the type of flow they send to LPs, the spreads that attracts and the impact of last look rejections when constructing their pricing and hedging functions. “We are not a trading venue, we are a market orchestrator and therefore it is important that clients understand how their different trading strategies can affect LP responses,” he explains. “We don’t take a view on whether last look is good or bad, instead we provide the customer with the information to help them make an informed decision on how they execute going forward.

“We offer very granular detail on how clients’ flow is handled by the LPs because we have all the related data,” he continues. “We are co-located with most of the major LPs and capture data from all the streams which are available on a client-by-client basis, which means we are able to identify potential outliers, for example, in response times.”

Weisberg stresses that as an independent party, oneZero has no opinion on response times, however there are occasions when it can help facilitate a bilateral conversation between client and LP. “Often LPs establish settings for their various feeds to a client and but may not have the opportunity to review them and reflect changes which have occurred in the clients’ underlying business,” he says. “Even if they make changes, they may not necessarily copy the client on that, which is where we can help. Creating and managing a liquidity pool can be complex, but it’s what we are good at helping clients do, thanks to the ways we can organise and optimise the clients’ data.”

In terms of actioning the data, oneZero clients are able to incorporate the historical cost of rejections into the price they are receiving from an LP into their aggregation function along with other factors. This means that a firm’s higher reject costs could see it get a lower priority in the pricing stack – theoretically a client could prioritise slightly wider prices that have a much greater certainty of execution and lower cost of rejects, thus rewarding those LPs on a combination of the quoted price and fill outcomes.

The cost of rejects can be calculated over any time horizon, however as Weisberg points out, it requires a good sample size to provide solid statistical significance. “This doesn’t really work over very short timeframes,” he observes. “It needs to offer a fair reflection of broad market conditions across all LPs.”

The release of this product plays to a sense in the industry, following the release of the GFXC’s last look paper, that more emphasis is being placed on liquidity consumers to analyse the impact of the practice on their flow. Equally, however, a tool such as this, also helps to highlight those LPs offering a high-quality execution experience – as such it can work both ways and, probably, create stronger, more robust and transparent relationships.

As Andrew Ralich, CEO and co-founder of oneZero, points out, “Last look analytics will provide better information that will lead to more informed outcomes for our clients and the whole market. This is especially important at a time when the industry is focused on the development and fair and effective usage of the last look process.”