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Screenshot of a breaking news alert e-mail from Q2 2017
Leading non-bank forex liquidity provider XTX Markets announced today it is now operating a ‘zero hold time’ (ZHT) model in its application of last look to its FX counterparty businesses. This is in response to market structure changes and is in accordance with the principles of the recently published Global FX Code.
Until the new model, rationale was to allow a liquidity provider to see the latest market data updates before applying price checks. If the holding window was not applied, the price check would potentially need to be performed before the liquidity provider can see the latest price update, increasing the likelihood of it being hit on a stale price.
However, market data tick increments are reducing across the FX primary markets meaning that market data is updated much more frequently than ever before. This weakens the rationale for imposing a holding window.
For example, if a holding window of 100 milliseconds is applied, for certain currency pairs, the liquidity provider could receive up to 20 primary market price updates before applying the price check.
As a result, XTX Market’s has removed the holding window applied to any trade requests in respect of its disclosed counterparty spot FX business. The “last look” price and/or validity check will be applied as soon as their systems receive the trade request.
XTX believes that moving to ZHT, if it were uniformly adopted, is a practice which will lead to a fairer and more transparent market for all market participants – a key objective of the Global Code.
Kenneth Kan, Head of Execution Trading at Dymon Asia Capital, commented:
We welcome the move to Zero Hold Time. This helps make FX markets firmer and more transparent and will benefit the buy-side and the FX market at large.
Zar Amrolia, co-CEO of XTX Markets, commented:
With recent improvements in technology and market data, we believe that it is hard to justify the use of a latency buffer in pricing. All direct counterparties of XTX Markets now enter into transactions either on a ‘Non Last Look’ or a ‘Zero Hold Time’ basis with no latency buffer.
We are encouraged that other top tier liquidity providers are working on a similar approach and that there are ECNs working on moving the price check away from LPs onto neutral venues (i.e ‘hosting’ the last look function).
We hope the combination of adherence to the Global FX Code and the ZHT practices of market leaders will reduce the impact of the problematic practices sometimes associated with Last Look and lead to fairer and more transparent markets for all participants.