FX: Last-look acceptance still boils down to caveat emptor
It has just received a very public vote of no-confidence from non-bank liquidity providers, but concerns around transparency are yet to outweigh the perceived benefits of last look.
Last look in the FX market is under scrutiny again.
In August, six non-bank liquidity providers – Citadel Securities, Flow Traders, HC Tech, Jump Trading, Virtu Financial and XTX Markets – issued statements criticizing the practice.
This followed the publication of data on Risk.net indicating that one-in-four of the top 50 liquidity providers do not publicly disclose how they use it.
Last look gives market makers a final opportunity to reject an order after a client commits to trade at a quoted price. It has long been a contentious practice, drawing a fine for Barclays in 2015 and criticism from market participants even earlier, yet its continued existence points to the difficulty of agreeing a consistent market approach.
Euromoney contacted the six liquidity providers for comment, but only Virtu responded.
The firm’s head FX trader, David Kratz, describes last look as a "blunt and cheap solution" that is nonetheless effective at ensuring liquidity streams are used for their intended purposes, protecting against liquidity recycling, and normalizing for technological differences between makers and takers that might cause delays in market data delivery or order submission.
But while last look is a viable way to achieve technological balance, he suggests there are better ones.