XTX: Last Look Defense is “Nonsense”

Jeremy Smart, head of distribution at XTX Markets, is critical of arguments that pre-hedging in the last look window enables FX market markets to keep quoting prices, even in difficult market conditions. 

“The reality is that’s a nonsense. The basis on which a price is being made should be clear between a liquidity provider and the consumer. Now it’s not enough for me as an LP to turn around and say sometimes I’m a principle and sometimes I’m agent.

“If you’re agent, charge a fee and be clear that you’re passing on the exact fill that you got in the market to the customer, but do that before the transaction, not selectively transaction by transaction. That doesn’t seem to me to right to me at all and so there needs to be much more clarity around that,” he says.

Given that XTX committed to a no hold time policy on FX trades earlier this year, Smart also addressed how the market maker can remain competitive in terms of pricing with other liquidity providers still using last look.

“If I’m making you a very tight price but ultimately have no need or requirement to actually stand behind that price then ultimately I’m not taking any risk. So if, for example, I’m taking your trade, putting it into a hold period, trying to transact that order in the market and filling you if I get executed on the market at a better rate but if I don’t get executed on the market at a better rate then rejecting your order then I don’t have any capital at risk. I cannot lose any money on that transaction. That is not market making, certainly not market making how I’ve understood it in my twenty odd year history in FX,” says Smart. 

He adds that there is a very important distinction between firms that are willing to take on this risk and those that aren’t.

“It can only be market making if there’s a genuine transfer of risk from you, the customer, to me, the LP, and that’s very important,” says Smart. 

You can watch the full interview here:

Jeremy Smart, head of distribution at XTX Markets, is critical of arguments that pre-hedging in the last look window enables FX market markets to keep quoting prices, even in difficult market conditions.  “The reality is that’s a nonsense. The basis on which a price is being made should be clear between a liquidity provider and the consumer. Now it’s not enough for me as an LP to turn around and say sometimes I’m a principle and sometimes I’m agent. “If you’re agent, charge a fee and be clear that you’re passing on the exact fill that you got in the market to the customer, but do that before the transaction, not selectively transaction by transaction. So there needs to be much more clarity around that,” he says.

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