Transforming FX Trading and Driving Industry Change

The FX Global Code of Conduct still has a long way to go, as it still allows 'last-look' market abuses.

Are pre-trade hedging and ‘last-look’ allowed in the FX Global Code of Conduct? We have seen a lot of news and developments recently about the Global Code of Conduct and all issues raised within this.

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Guy Debelle, who is the chair of the FX working group, charged with issuing the code of conduct, welcomed concerns to be raised from the markets. I met Guy approximately fourteen months ago and our concerns are the same.

It appears that the global code would allow ‘last-look’ and it appears that pre- trade hedging would be permissible as long as it is disclosed to the client. However, it is impossible for any client to fully understand or comprehend all the disclosures from all the different market participants around this opaque practice – it is simply not feasible.

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Permissable Abuse

It is also very hard for any group to support the global code and be asked about how they can measure adherence to this global code whilst these two abuses in the marketplace are permissible or facilitated under the code itself.

For example, XTX markets recently issued a (Transaction Cost Analysis) TCA tool and in its disclosure they go a step further than the global code, saying that it will not act during the ‘last-look’ window. In fact it has stated that some of the tools it is issuing are the death knell of ‘last-look’.

One only has to look today at the recent $7 million fine issued by the US Commodity and Futures Exchange to see the potential for abuse under these practices. A useful exercise is looking at the market making behavior behind this fine and everything that went on during this entire period during this ‘last-look’ window.

I feel it is instrumentally important to end these practices that are most open to abuses in the FX market.

This article was written by David Mercer, CEO of LMAX Exchange.

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