FastMatch is introducing rules that will
require all liquidity providers to use only a “symmetrical last look” practice
on its ECN. The new operating procedures are designed to “make FX institutional
markets more transparent and operate a fair marketplace”. The new procedures go
into effect on February 1st, 2016.
“We are introducing these new operating
procedures to move the market towards a more fair and transparent place. We
felt it is unfair that some traders were rejecting only unprofitable, while
accepting only profitable, last look trades and wanted to stop this practice,”
says Dmitri Galinov, CEO of FastMatch.
According to the update, all liquidity
providers are required to use only a symmetrical last look practice.
Symmetrical last look is the practice by which the same trade rejection logic
is applied to all trades within the last look holding period, regardless of the
financial impact to the maker/taker. Trades rejected only when an order is
unprofitable to the liquidity provider by the end of the last look holding
period shall be considered to be asymmetrical last look.
“Historically, last look was used by
traders to prevent themselves being double- or triple-hit by clients, but it
was found that some were using it to reject unprofitable trades and keep the
profitable ones. These updated procedures will help to eliminate this
practice,” adds Galinov.
In order to prevent the use of
asymmetric last look on the platform, every calendar month, providers that
receive and reject more than 30 orders from FastMatch are subject to an asymmetrical
last look check. When a liquidity provider fails this check, FastMatch will
immediately notify the user in writing and offer a commercially reasonable
amount of time to resolve the issue.
If the asymmetrical last look check is
failed again the following calendar month, FastMatch will immediately suspend
the user’s account until the user can provide signed written assurances from
its compliance officer that the issue has been addressed.
On the updates, Galinov comments, “If we
took the new procedures and back-tested them in November, a couple of traders
would be warned under the new rules, but this is still a very small section of
the market. We talked to the market makers before we introduced the new
procedures and got a very positive feedback with no kick-backs. Most of them
already changed their systems to eliminate asymmetrical last look trading.”
In addition, the current operating procedures
will not match two orders if matching them would result in a transaction price
greater than 0.15% from the midpoint of the bid-ask spread. The new procedure will
not match two orders if matching them would result in a transaction priced at
greater than the pip value listed from the midpoint of the bid-ask spread for
the relevant asset class at the time the transaction is executed. This change
will enable the ECN to have a more precise definition of the protective band
per currency pair.
FastMatch operates three separate and
distinct matching engines located in New York, London and Tokyo.