ASIC wholesale FX report: Last look rejection rates for Australian clients at around 1.5%

The regulator held over 30 meetings with industry and concluded there was generally limited understanding of last look among clients.

The Australian Securities & Investments Commission (ASIC) has earlier today published its report on wholesale FX practices in Australia.
Following ASIC’s work reviewing wholesale FX markets and participants in 2018 and 2019, the regulator identified several better and poorer practices used by participants operating in the market.
ASIC reviewed the disclosure on and charging of mark-ups to clients by 11 participants. It also examined ‘last look’ to better understand market practices, trade rejection frequency and clients’ awareness of this practice.
The list of companies participating in ASIC’s reviews includes:

ANZ Banking Group;

Citigroup;

Commonwealth Bank of Australia;

Deutsche Bank;

Goldman Sachs;

HSBC;

JP Morgan;

Macquarie;

National Australia Bank;

Royal Bank of Canada;

UBS;

Westpac Banking Corporation.

Regarding “last look”, ASIC held over 30 meetings with industry. There was generally limited understanding of last look among clients, with the practice often considered to be a ‘cost of doing business’.
During the reviews, ASIC assessed the disclosure documents provided to clients on last look and analysed the trade request rejection statistics during calendar year 2018. The regulator found last look rejection rates for Australian clients were around 1.5%, with high-frequency traders receiving the most trade rejections.
Th list of poorer practices includes disclosure of last look practices to clients being difficult to access, complex and legalistic. Also, the regulator identified trade rejections that were limited to circumstances that benefited the participant not the client. Further, there were long hold periods before a client was informed of a trade rejection.
The regulator also reviewed the mark-up practices of 11 participants, including:

disclosure of mark-ups made to clients;

internal mark-up procedures and practices;

the methods used and steps taken to apply mark-ups;

analysing FX spot and forward transaction data for a sample period in May and June 2018 to consider the reasonableness of mark-ups charged;

performed calculations aimed at identifying mark-ups on transactions that appeared to be statistical outliers.

A set of poorer practices were identified, such as opaque and inconsistent mark-up practices applying to clients, as well as ad hoc and manual monitoring of a sample of mark-ups.
As of April 2019, total global FX volume was around USD6.6 trillion per day across spot, outright forwards, swaps, options and non- deliverable forwards. Around 1.5% of global FX volume occurs in Australia, with the Australian dollar the fifth most traded currency in the world (around 6.8% of global volume).