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Barclays' FX fine: The death knell for last look?

Barclays' FX fine: The death knell for last look?

The $150 million fine imposed on Barclays this week for abusing its last-look policy on clients' currency orders until as recently as three months ago signals another nail in the coffin for the controversial practice, say analysts.

Randomization continues to divide opinion, with proponents’ claims of reduced latency arbitrage set against concerns over reduced certainty of execution and wider spreads.

Having done well from their exposure to the RMB during the past decade, the currency’s surprise devaluation in mid-August should force Chinese companies to brush up on hedging strategies that were rusty at best, but many are instead simply focusing on opportunistic borrowing strategies.

An in-depth guide to global currency wars; how Beijing is seeking to globalize the renminbi, through currency swaps and trade-financing facilities; the rise of the offshore bond market; and how fee-hungry banks are salivating at the prospect of the RMB’s growth.

Call it what you will – currency war, competitive devaluation, currency manipulation, currency intervention – but central banks are knee-deep in the trenches as they battle to lower their exchange rates and boost their economies.

Companies that use over-the-counter (OTC) derivatives to manage foreign-currency earnings exchange-rate risk will have taken note of recent pro-active developments on market reform in Asia and Africa.

The AKP’s surprise victory last weekend added momentum to a lira relief rally that had begun in the run-up to the election, with some investors punting a strong government will kick-start reforms stalled since Turkey’s last election in June – but the rally is likely to prove short lived unless PM Davutoglu makes reputable appointments in key economic posts.

Foreign-exchange market participants are warming to the idea of exchange-like trading and abolishing outdated market practices such as last look – but banks and non-bank players still cannot agree on the future landscape of FX, according to a survey published by LMAX Exchange.

Agency desk execution has been described as the way forward for banks looking to reduce costs and retain clients, but it is far from clear as to whether most institutions will go down this road.

The Financial Stability Board (FSB) has issued a progress report for the reform of the FX benchmarks business, expressing satisfaction with the overall progress the industry has made – but it called for a greater role for smaller benchmarks other than WM, while suggesting smaller banks are also lagging their larger peers.

Offshore renminbi has passed another milestone, becoming the first non-CLS settled currency to be tradeable on ParFX – but China’s regime of exchange-rate controls still casts a long shadow over the market’s infrastructure.

Mis-selling of derivatives is fast becoming a hot topic in foreign exchange, as industry players come under pressure from businesses, regulators and the press to be transparent on price and product.

The yen has depreciated sharply since Shinzo Abe returned to power as Japanese prime minister last year, promising to loosen monetary policy and weaken the currency in a bid to reflate the economy.

The Swiss National Bank has been under sustained fire in its attempt to defend its euro peg in recent years.

There has been more speculation about the death of the euro but despite the doomsday diatribes of a possible break-up and the predilection of pessimists to dig up such terms as Armageddon and Apocalypse, the single currency is still alive and kicking.

Swap execution facility (SEF) regulations, intended to increase transparency and reduce swap market risk, have been reported to impact market makers’ margins and liquidity, creating wider spreads for end-users.