Although Dmitri Galinov, CEO of FastMatch, defends the controversial practice of last look in FX, he also claims that it will be eliminated within the next two years.
Explaining why last look has become such a hotly debated topic within the FX industry, Galinov explains that it is a “valuable tool” that enables liquidity providers to quote tighter prices to their customers.
The problem, as he puts it, is that “consumers want tighter prices, but they don’t want last look”. For now, however, the two appear to be mutually exclusive, which is why this is a difficult issue for the industry to solve.
Despite defending the use of last look, Galinov adds that he “strongly” believes that “last look will be eliminated in the next two years”. The main reason for this, he says, is that EBS and Thomson Reuters – considered the two primary venues in FX – are increasing the speed of their market data.
In particular, he highlights EBS’s recent decision to launch a five-millisecond data feed as a catalyst for the elimination of last look.
“The argument used to be, ‘I’m going to hold the order for 100 milliseconds because I’m waiting until EBS ticks to see where the market is, if it’s against me I’m not going to take the order’. Now that EBS ticks every 5 milliseconds, that means that someone who is holding 100 milliseconds is waiting for 20 ticks on EBS instead of one.
“So obviously, if I’m a compliance officer in a bank, I will come to a trader and say why are you waiting 100 milliseconds when you only have to wait five? Now what happens when EBS goes real-time? How would you justify holding the order to see where the market is? So I think this whole conversation about last look is going to go away,” says Galinov.
Elsewhere, he warns that the lack of risk takers in the FX market is contributing to flash events, adding that there appears to be little that the industry can do to reverse this trend.
Comparing these flash events to a tsunami hitting the beach, Galinov says: “It used to be in the old world there were traders that took risk and they put in large orders that acted like a wall that would cut down the tsunami, and by the time that tsunami went through all those big walls and it reached the beach, it was a small little wave.
“So now all these big walls have disappeared, now that people don’t take as much risk anymore – and that was a direct result of SNB and regulation and deleveraging – there are less walls in the ocean to stop the flash crash tsunami.”
You can watch the full interview here: