XTX Markets says it is now operating a ‘zero hold time’ (ZHT) model in
its application of last look to its FX counterparty businesses. The firm says
it is in response to market structure changes and is in accordance with the
principles of the recently published Global FX Code.
XTX is removing a deliberate latency buffer before the price check is applied
in the last look window. Under a latency buffer the trade request is held for a
brief, prescribed time delay before the price check is performed.
explains the rationale behind this is to allow the liquidity provider to see
the latest market data updates before applying the price check. 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.
JP Morgan formally disclosed it did not use a
latency buffer in
its last look window, however Profit
& Loss reported at the time that it understood the bank had not been
doing so for at least a year before that.
XTX says it
is responding to the improved market structure in FX, specifically that market
data tick increments are reducing across the FX primary markets meaning that
market data is updated much more frequently than ever before. Earlier this
year, NEX Markets’ EBS announced it was publishing
market data at 5 millisecond intervals on its EBS Live Ultra feed, having already
moved to 20ms last year, and Thomson Reuters started offering
updates at 25 ms intervals via its Matching Binary Multicast Feed.
these developments weaken the rationale for imposing a holding window, noting
that a holding window of 100 milliseconds would mean, for certain currency
pairs, the liquidity provider could receive up to 20 primary market price
updates before applying the price check.
have removed the holding window applied to any trade requests in respect of our
disclosed counterparty spot FX business,” the firm says. “The last look
price and/or validity check will be applied as soon as our systems receive the
remains a controversial area in the Global Code and the Global FX Committee is
currently in the throes of seeking feedback on
Principle 17 that
deals with the practice.
XTX says it “endorses and strongly supports” the Code as a member of the Market
Participants Group that helped create it. “As a major participant of the
wholesale FX market, we intend to adhere to the Code by evolving our own
institutions’ FX practices to be consistent with the principles in the Code,”
it adds. “We are also committed to promoting the Code to our counterparties in
support of the integrity and effectiveness of the FX market.”
also expressed its support for Principle 17. While there remains debate over
the use of the word ‘likely’ in Principle 17 – namely it states, “During the
last look window, trading activity that utilises the information from the
Client’s trade request, including any related hedging activity, is likely
inconsistent with good market practice…” – the principle does stress the need
for market Participants employing last look to be transparent regarding its use
and provide appropriate disclosures to its counterparties.
says it believes that removing the latency buffer, 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.
recent improvements in technology and market data, we believe that it is hard
to justify the use of a latency buffer in pricing,” says Zar Amrolia, co-CEO of
XTX Markets. “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
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,” he adds.
Kenneth Kan, head of execution trading at Dymon Asia Capital, says, “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.”