LMAX Exchange responds to GFXC request for feedback on Last Look practices in the FX market

London, 21 September 2017 – Today LMAX Exchange submitted its feedback on Last Look practices to the GFXC Secretariat, as part of the formal consultation process on the wording of Principle 17 of the Global FX Code.

Response to Specific Consultation Questions

As the first market participant to commit to the FX Global Code, LMAX Exchange welcomes the opportunity to provide feedback on Last Look practices in the Foreign Exchange Market.

Though the FX Global Code is a positive starting point for restoring trust in the FX industry and creating globally consistent guidance, LMAX Exchange doesn’t believe that the Code goes far enough on restricting or banning the potential market abuse that can result from the use of ‘pre-hedging’ and ‘last look’, in its wording of Principle 17.

Questions: Principle 17 of the Code states that “During the last look window, trading activity that utilises the information from the Client’s trade request, including any related hedging activity, is likely inconsistent with good market practice because it may signal to other Market Participants the Client’s trading intent, skewing market prices against the Client, which (1) is not likely to benefit the Client, and (2) in the event that the Market Participant rejects the Client’s request to trade, constitutes use of Confidential Information in a manner not specified by the Client”.

LMAX Exchange agrees that any trading activity, utilising the Client’s order information, during the ‘Last Look’ window does not benefit the client and at the very least, constitutes use of confidential information in a manner not specified by the client. Furthermore, we are not aware of any situation or scenario where pre-hedging during the ‘Last Look’ window can be beneficial to the client or where clients benefit from skewed market prices against their orders, caused by information leakage during the ‘Last look’ window.

The current wording in Principle 17 effectively legitimises pre-hedging, which could stand accused as front-running during the ‘Last Look’ window. Legitimate working of a client order will be indistinguishable from unethical front-running for pure profit-making utilising privileged Client’s order information. Front-running is considered ‘unethical practice’ in capital markets, defined as ‘unethical practice whereby someone with advance knowledge of a specific market order in, say, shares, bonds or a currency from a client steps in ahead and buys for their own account. When the client’s usually much larger order is executed and drives up the price, the private purchase can be sold at a profit’. Thus, if front-running is acknowledged as ‘unethical’ across all asset classes, why isn’t there a stronger stance in the Global Code on pre-hedging activity during the ‘last look’ window?

Thus, as a direct response to the consultation questions, LMAX Exchange recommends removing ‘likely’ from ‘likely inconsistent with good market practice’ in the wording of Principle 17, referring to ‘any hedging activity during the last look window utilising the information from the Client’s trade request.

Longer-term, LMAX Exchange believes that the Code should ban ‘last look’ at least on anonymous multi-dealer trading venues; it can be argued that the practice may still have its place in the disclosed bi-lateral trading relationships (i.e., bank to specific client), if both counterparties prefer to trade with ‘last look’. Banning ‘last look’ will avoid any potential for market abuse, that has already been evidenced by recent scandals and legal investigations for the misuse of ‘last look’ by some of the most reputable, global financial institutions. LMAX Exchange believes that the need for ‘last look’ has become obsolete; the technological advancements and availability of real-time streaming market data, enabling instantaneous price checks, have entirely eliminated the need for ‘last look’ as a risk management tool. The practice of ‘last look’ that doesn’t exist in any other asset class, erodes trust in FX trading at the time when the industry needs to reinstate much-needed transparency and fairness in FX markets.

View full response –

Media Contacts

For further information please contact:

LMAX Exchange:

Barbara Pozdorovkina T: +44 20 3192 2524 E: [email protected]

About LMAX Exchange

LMAX Exchange Group is a dynamic, visionary and award-winning financial technology company. Recognised as one of the UK’s fastest growing technology firms, LMAX Exchange is leading the transformation of the global FX industry to transparent, fair, precise and consistent execution. Operating one global marketplace for trading FX, metals, indices and commodities, LMAX Exchange delivers open access, transparency and a level playing field to all market participants.

LMAX Exchange Group offers all clients the ability to trade on LMAX Exchange central limit order book, driven by streaming no ‘last look’ limit-order liquidity from top tier banks and non-bank financial institutions. Servicing funds, banks, brokerages, asset managers and proprietary trading firms, LMAX Exchange offers an anonymous, regulated, rules-based trading environment, order execution in strict price/time priority, and access to real-time streaming market and trade data, enabling all market participants to control execution quality and total trading costs.

Offering a comprehensive range of instruments and ultra-low latency execution, LMAX Exchange operates a global FX exchange infrastructure with matching engines in London, New York and Tokyo.

LMAX Exchange - a unique vision for global FX.

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LMAX Exchange Group is the holding company of LMAX Limited and LMAX Broker Limited.

LMAX Exchange is a trading name of LMAX Limited, which operates a multilateral trading facility, authorised and regulated by the Financial Conduct Authority (firm reference number 509778) and is a company registered in England and Wales (number 6505809).

LMAX Global is a trading name of LMAX Broker Limited which is authorised and regulated by the Financial Conduct Authority (firm reference number 783200) and is a company registered in England and Wales (number 10819525).