Will last look disclosures come to FX derivatives?

JPM and NatWest have published their swaps and options last look windows – will others follow suit?

Whenever a liquidity provider publishes a standardised disclosure for foreign exchange dealing terms online, as required by the Global FX Committee, we read each one with interest.

The most interesting aspect, of course, is whether the LP is explicitly saying that it will not be applying any additional hold times on top of any last look checks it may need to do to ensure prices have not gone stale. These additional hold times have effectively been outlawed by the GFXC and in subsequent comments from the UK’s Financial Conduct Authority.

However, when examining these disclosures recently, what also caught our eye is that two banks – JP Morgan and NatWest Markets – went a step further and disclosed their last look windows for FX derivatives.

For those interested, at JP Morgan the last look window for spot, forwards and swaps is between 0.7 and 9 milliseconds (ms), while for FX options it’s between 0.187 and 12.451 seconds.

At NatWest, “FX forwards, including FX time options and the forward element of FX swaps” last look times are between 2 and 257ms, the latter it says being the large majority of transactions. FX options are between 223ms and 1,240ms.

While not mandatory, the banks said they disclosed these times in a bid to boost transparency and encourage a fairer marketplace for clients.

The question then is whether disclosures of last look times for FX derivatives will become the norm.

For now, it looks like the answer to that question is broadly “no”. FX market participants argue that derivatives are still largely manual and voice traded, and that those users are generally not as sensitive to latency as those in the spot market.

But some banks acknowledge that a small set of clients do care about latency in FX derivatives pricing, and therefore such information could become important to these specific players. One European bank is actively working on improving its technology to be able to conduct its last look checks for non-spot FX products as quickly as possible, though it does not disclose how long these checks typically take.

Some believe this might become more important for swaps trading, given the spot element of the product. And as forwards and swaps become more electronified, latency may become more of an issue.

With 10 LPs yet to publish their FX disclosures ahead of the GFXC’s August 1 deadline – Bank of America posted its disclosure late on May 12 – we should know the answer pretty soon.

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