Barclays trader outlines use of Last Look FX and Toxic Clients


Barclays Plc (LON:BARC) has fired managing director David Fotheringhame after an order from the Department of Financial Services (New York regulator) two years ago, Bloomberg reported. 

Fotheringhame was sacked after a $150 million settlement between Barclays and the New York’s banking regulator. The agency had told the bank in 2015 to “take all steps necessary” to eliminate his post, which paid him 1.2 million pounds ($1.6 million) in 2014.

The fired Barclays Plc trader says there was nothing wrong with the way he applied a tool that blocked some unprofitable currency trades to all clients, rather than just “toxic” ones, and now is fighting in a London court to get his job back.

Bank officials thought the order was unfair but signed it “on pain of losing their banking license and hence having to close their U.S. businesses,” he said in court filings.

Government officials and traders who comprise the Global Foreign Exchange Committee changed the voluntary FX Global Code to indicate that no one should “undertake trading activity that utilizes information from the client’s trade request during the last-look window.”


Algorithm

The algorithm-based systems force banks’ computers to delay a fraction of a second after a hedge fund, a company or a broker requests a currency trade. If the market moves beyond a set threshold in that period, the trade gets rejected.

The system aims to defend banks against clients trying to profit from trading technologies that let them see market moves just before the bank does. Most rejections come when the market moves against the bank, Fotheringhame said, but since a 2014 tweak by Barclays, they can also get rejected if they’d have helped it.

The question at the heart of the dispute is whether Barclays should’ve used the trade-blocking trick only against clients who were taking advantage of advanced market knowledge – or if it can be applied to everyone, so that even customers whose trades mostly go in the bank’s favor occasionally get their trade requests rejected when they go instantly against the bank.


Fotheringhame had a “wholly misconceived” argument that the disciplinary process against him “was simply a fig-leaf” to implement the DFS order, the London-based bank said in its papers for the hearing. It said it fired him because of a “genuine belief” in his misconduct and after a thorough disciplinary procedure.

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Barclays trader outlines use of Last Look FX and Toxic Clients

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