The Last Look…
Posted by Colin Lambert. Last updated: August 15, 2022
This will be necessarily brief as I am away for 10 days playing chicken with the crocodiles on the golf course – but as offices go, it’s not bad!
I wanted, however, to acknowledge the latest move by an FX platform to improve the environment in which their customers operate. With 360T joining Cboe FX in requiring Code-compliance (or no-last look) liquidity for certain streams, the pressure is being steadily applied to those LPs who have shied away from renewing their commitment.
Increasingly it seems to me, the industry is telling those who would play games that their time is up – and, more importantly, that a firm’s original adherence to the FX Global Code is insufficient. The Code has always been referred to by successive chairs as a “living, breathing document”, that means periodic renewal on the part of FX players globally.
It has been interesting talking to a few LPs recently who have been in Code-compliant streams. One or two high profile LPs are still to renew and have been kicked off these streams, but this has not, initially at least, translated into significantly better outcomes for those providers who have renewed their Statement of Commitment.
Talking to two LPs over the past weeks, they have observed that the flow being priced is “tricky” to use the phrase of one, and that yields are low. I should make clear these were observations, not complaints, but I find it interesting that certain LPs who have yet to renew their commitment, and have been kicked off, were clearly either willing to take a hit to see certain flow (very unlikely) or were managing to monetise it to a degree others are yet to achieve.
This begs the simple question, how did they do that? I would suggest they did so by edging into potentially grey areas – most overtly, they probably used additional hold time, but who is to say whether they were also trading in the last look window or not? We keep on being surprised by revelations over how some LPs behave, this could be the latest instance? I find it hard to believe that there is a “magic bullet” which enables one LP (especially if there is no real FX franchise behind it) to price significantly different to others.
It is, perhaps, ironic, that for all the work on the Code’s principles over the past six years and two reviews, the most significant change could actually be something that is not formally part of the document.
So the moves by the platforms to isolate these LPs should be applauded, because if nothing else they are creating level playing fields and establishing reasonable parameters within which LPs can act.
It is, perhaps, ironic, that for all the work on the Code’s principles over the past six years and two reviews, the most significant change could actually be something that is not formally part of the document. What these platforms are doing is reinforcing the no additional hold time recommendations, which was established of course, as part of “further guidance” that does not feature in the Code itself. I suspect that a future iteration of the Code will include such a recommendation more formally, especially if, as seems to be the case with 360T and Cboe FX, there is no detriment to the quality of liquidity on offer.
For now though, it looks as though the FX market has improved a notch thanks to a decision taken with the interests of the market in mind, rather than the “commercials”. It will be interesting to see how the hold-outs react – more pertinently perhaps, what will those platforms yet to impose Code-compliance requirements on their anonymous pools do?
I say there is no commercial motive behind the latest moves and I doubt there is – that is not to say, however, that the very same buy side who seem reluctant to commit to the Code, don’t flock to those venues where they know the LPs are operating on the same terms, in a fair and equitable environment.
Time will tell, but again, I see this week’s news as a positive for the FX industry and applaud the company making the move.