As mentioned previously, The Global Foreign Exchange Committee (GFXC), has updated their guidance around ‘trading in the last-look window’ – Principal 17 of the Global Code of Conduct, as a result of market feedback.
The previous version of the code included the phrase ‘is likely inconsistent’ as shown below:
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.
The revised code (here) replaces that with much stronger wording, clearly stating market participants should not conduct trading activity ….
Market Participants should not conduct trading activity that utilises the information from the Client’s trade request during the last look window. Such trading activity would include (1) any pricing activity on E-Trading Platforms that incorporates information from the trade request and (2) any hedging activity that incorporates information from the trade request.
Such activity would risk signalling to other Market Participants the Client’s trading intent and could move market prices against the Client. In the event that the Client’s trade requests were subsequently rejected, such trading activity could disadvantage the Client.
This guidance does not apply to an arrangement that features all of the following characteristics:
1. An explicit understanding that the Market Participant will fill the Client’s trade request without taking on market risk in connection with the trade request by first entering into offsetting transactions in the market; and
2. The volume traded in the last look window will be passed on to the Client in its entirety; and
3. This understanding is appropriately documented and disclosed to the Client.