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August 18, 2021

GFXC releases guidance paper on Last Look, publishes disclosure templates

August 18, 2021 - The Global Foreign Exchange Committee (GFXC) has released a guidance paper on Last Look trading in the FX market, and is encouraging liquidity providers and platforms to provide information on their trading practices and operations by completing a Disclosure Cover Sheet. The Disclosure Cover Sheet can be viewed here.

The Disclosure Cover Sheet asks Liquidity Providers to disclose:    • whether they ever employ Last Look   • whether use of Last Look is Symmetrical / Asymmetrical*    • The minimum and maximum length of the LP's Last look window

   The Disclosure Document also asks LPs to provide information on their handling of orders, namely:    • Order aggregation    • Discretion    • Time-Stamping    • Partial Fills    • Use of reference prices    • Markup / Fair Pricing    • Aggregation and liquidity sources    • Internal sharing of Confidential FX Trading information    • Use of Market Colour

The Global Foreign Exchange Committee was established in May 2017 with the "aim to promote a robust, liquid, open, and appropriately transparent FX market".

Principle 17 (on page 21) of the Global Code states that "Market Participants employing last look should be transparent regarding its use and provide appropriate disclosures to Clients", and defines last look as, "a practice utilised in Electronic Trading Activities whereby a Market Participant receiving a trade request has a final opportunity to accept or reject the request against its quoted price. Market Participants receiving trade requests that utilise the last look window should have in place governance and controls around its design and use, consistent with disclosed terms. This may include appropriate management and compliance oversight."

The FX Global Code sets out principles of good practice for last look and also provides illustrative examples (see pages 21-22, Principle 17 of the Global Code). The new guidance paper provides further clarity to market participants about the appropriate usage of last look and is intended to be read alongside the Code.

The paper was developed by a working group comprising a broad range of market participants led by former GFXC co-Vice Chair Akira Hoshino and drew on input from the GFXC's member foreign exchange committees from around the globe. A draft paper was published for public feedback earlier this year and the final paper reflects the careful consideration of all the feedback that has been received.

The guidance paper reinforces Principle 17 of the Code by emphasising that the last look be applied in a fair and predictable manner, and that the process is intended to be used for the price and validity checks only, and for no other purpose. The three main recommendations are to:

   • Ensure a fair and effective last look process;    • Enhance ex-ante disclosures; and    • Ensure information is available to regularly evaluate the handling of trade requests. GFXC Chair Guy Debelle commented that, "The GFXC will continue to watch developments in this area. The guidance provided in this paper should help the market move forward in a productive way. Liquidity providers adhering to these principles and providing transparency about their practices should help to give their clients greater clarity about the process. Liquidity consumers should then use this information to evaluate their execution, ask questions of their liquidity provider's last look process, and evaluate whether to trade with liquidity providers that are using last look."

The list of market participants that have committed to follow the Global Code can be viewed here.

*a symmetrical last look system is one whereby a trade rejection occurs whether the market moves in both directions, and asymmetrical being one where the market moves and the trade would be unfavourable to the LiquidityProvider / Market Maker

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