Last Look is a common industry practice allowed on many foreign exchange trade platforms. It gives banks the opportunity to pull out of trades at the last moment if the market moves against them, even after the trade was accepted by a client. This leads to numerous potential conflicts of interest.
The third paper in the fund’s Asset Manager Perspective series assesses this practice and contributes to the ongoing debate about how Last Look should be implemented. We advocate greater transparency in the application of Last Look, including the reasons for rejecting a trade. One of our recommendations is to limit the liquidity providers’ evaluation periods. We believe that asset managers should proactively monitor the liquidity providers’ conduct and its impact on execution quality.