The electronic world of deal rejection

[fa icon="calendar"] 20-Feb-2020 16:17:49 / by David Woolcock


It would have been one thing pondering on how to deal with a misdirection of Cupid’s bow recently on St. Valentine’s Day. But, instead, how do your customers react, when attempting to book a deal on-line, when a quoted price is rejected? It can often lead to confusion and leave a negative feeling if not properly understood as to why it occurred.

In electronic trading a practice called ‘last look’ allows a liquidity provider to send a price subject to a ‘Last Look’.  When an offer to trade on the price is received, an acceptance or rejection message is sent hopefully, with a code that explains the reason for any rejection. The practice is particularly prevalent in FX markets and has sparked considerable debate and controversy. 

Often one of the  gripes about the use of last look from a bank’s customers has been the reject message not showing clearly why you, as a liquidity provider did not honour the price. The reasons for your rejection can range from latency, the customer not being onboarded properly, credit or risk. The FX Global Code (FXGC) is clear about being transparent about last look policies and indeed the working group on disclosures asked the question of banks regarding last look – “Does your firm’s FX disclosure clearly describe its policy on the application of last look?”. This does not resolve the issue of standardised rejection messages that would allow customers to compare their liquidity providers’ performance. 

However, in the minutes of the Foreign Exchange Joint Standing Committee (FXJSC) chaired by the Bank of England in May 2019 (published in September) James O’Connor (BoE) – “observed that there was currently inconsistency in the reject codes provided across the market with a diverse set of justifications for rejecting a trade, and that the information provided may not in some cases be particularly informative.” The Investment Association (IA) in the same meeting highlighted a position paper on reject codes, containing six high-level rejection code categories and announced a consultation on the subject. 

This month the IA’s final position on ‘Standardisation of Reject Codes in FX Trading’ was published and can be found here.

The proposals were produced through consultation with their membership, banks, the Global Financial Markets Association, trading venues and trading technology providers. Here at Eurobase we will embed the rejection message codes into Siena and our banks who wish to use them will just need to flick a switch. We will also be making sure rejection codes are passed through for those using a “cover and deal strategy” – see my previous blog regarding this practice.

Hopefully, none of my readers were having to reject customers  not so long ago on Valentine’s Day and Cupid’s bow shot true and straight. Let’s hope, in keeping with the best traditions of the FX Global Code, that further support is given to meaningful transparency in a way which allows your customers to make an accurate comparison of your liquidity policies and practices.   


Topics: Banking, Blog, TMS, Global Code, Treasury Management, Treasury, FX, FX payments, Digitalisation, deal, last look

David Woolcock

Written by David Woolcock

David Woolcock is an independent consultant and Director, Business Consulting at Eurobase. In addition, David is Chair of the Committee for Professionalism at ACI – The Financial Markets Association as well as Vice-Chairing the ACI FX Committee. He is also a member of the Market Practitioners Group for the Bank of International Settlement's FXWG that wrote the FX Global Code.