The British Investment Association is calling on banks and brokers to provide greater transparency when they give reasons for pulling out of an FX trade at the last moment.
As it currently stands, fund managers are left to wonder what is causing some of the last-minute trade cancellations, as banks are not providing any information when such occurrences take place.
The new guidelines, published today, require banks and brokers to specify the reasons for cancelling a position at the last moment. They must adhere to the guidelines and provide a reason from a pre-set list of causes, including speed, price improvement, internal credit checks, and price tolerances.
The FX trading market in London averages a daily turnover of over $2 trillion. The sheer size of the market makes it critical that all activities are monitored to prevent misconduct by market participants.
‘Last Look’ Causing Issues
There has been a plethora of instances over the past year in which the ‘last look’ practice has caused issues.
In July of last year, Alpari’s US subsidiary filed a lawsuit against 6 prime brokerages, over their use of the practice when dealing with Alpari.
In another case, Deutsche Bank was sued for delaying trades in order to get a last look window and use the information collected during this time to its own benefit. The bank later attempted to get the lawsuit withdrawn, but this attempt was rejected by a US judge.
GFXC Revised Global FX Code of Conduct
As a result of the aforementioned cases, the Global Foreign Exchange Committee (GFXC) published an updated version of the Global FX Code of Conduct in December. The modifications pertained to Principle 17, which directly addresses the practice.
The GFXC issued a new guideline forbidding the use of information from a client’s trade request during what is considered to be a ‘last minute’ time frame.