Fund managers “concerned” at losing out in FX ‘Last Look’

Foreign_exchangeA trade body has called for higher standards in the foreign exchange market so that banks do not misuse trade information from fund managers.

The UK’s Investment Association (IA) is targeting ‘Last Look’, a practice whereby liquidity providers, such as the banks, have the final opportunity to decline or accept a trade request.

Last Look can negatively affect the ability of asset managers to meet the needs of their clients, the IA said, and considers the practice unacceptable where misuse of information can mean banks pre-hedge during the Last Look window.

Among other areas of concern, the IA highlighted trading activity based on information derived from rejected trades; and trades based on information from a request for quotation which is in progress or those that are not won.   

Galina Dimitrova, director of investment and capital markets at the IA, said investors “have long been concerned” about the lack of transparency around Last Look.

“We want to ensure that the FX markets are fair and effective as this benefits investors by enabling asset managers to make efficient and productive investments on their behalf.”

The IA has issue best practice guidelines, called ‘FX Global Code of Conduct’, which it is hope will improve transparency.  

Transparency is necessary, said Dimitrova, because there is a current lack of clarity for asset managers when their trades have been declined as a result of the application of Last Look. Also, firms often do not receive notification when their individual trades have been rejected, or get an explanation as to why Last Look has been applied, making it difficult to understand the impact on trade execution.

The IA wants liquidity providers to publish a clear definition of Last Look and their procedures, as well as formally informing clients when Last Look has been applied.

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