Last Look
In financial markets, last look is a practice primarily used in the foreign exchange (FX) and over-the-counter (OTC) markets. It grants liquidity providers, such as banks or market makers, a brief window of time to accept or reject a trade request from a counterparty after the trade request has been made but before it is executed.
Here are the key components of last look:
Price Verification: During the last look window, the liquidity provider can verify if the quoted price is still accurate and reflective of current market conditions. If the market has moved unfavorably for the provider since the quote was given, the trade might be rejected.
Risk Assessment: The liquidity provider can assess various risks associated with the trade, such as counterparty credit risk, potential market impact, and overall exposure.
Trade Acceptance or Rejection: Based on the verification and risk assessment, the liquidity provider can decide to either proceed with the trade at the quoted price or reject it. If the trade is rejected, the counterparty typically receives a notification of the rejection.
Regulatory bodies and industry groups have scrutinized last look practices, advocating for clearer rules and greater transparency to ensure fair treatment of all market participants. Some platforms and liquidity providers have moved towards minimizing or eliminating last look to enhance market integrity and trust.
In summary, last look is a practice that allows liquidity providers a final opportunity to assess and decide on the execution of a trade, balancing the need for risk management with the goal of fair and efficient market operations.