The FCA has confirmed its recognition of the updated FX Global Code and the Global Precious Metals Code.
In doing so, the FCA noted that "behaviour that is in line with an FCA recognised code will tend to indicate a person subject to the SM&CR is meeting their obligation to observe ‘proper standards of market conduct’..." and, in relation to this, went on to make the statements quoted below in relation to 'last look' and 'pre-hedging' practices.
While regulatory concerns regarding the (mis)use of such practices is not new (e.g., ESMA's 2020 MAR Review report considered guidance is needed in respect of pre-hedging in a MAR context), the fact that the FCA has made these statements and drawn a direct link between them and the FCA's Principles for Businesses and Conduct Rules, both of which require proper standards of market conduct to be observed, is one that firms and senior managers will want to bear in mind when considering the updates to the Codes and their implications for firms.
In addition to the statements below, the FCA also notes that firms will need to make clear and transparent disclosures to market users to explain how their orders will be handled - firms may therefore need to revisit their current disclosures in this regard.
Regardless of the terminology used, last look practices that incorporate a delay that is additional to what is required to complete price and validity checks (...[sometimes known as] 'additional hold time') are not consistent with the Codes. For example, market participants should not prolong the duration of the last look window for the purpose of seeing if future prices move in their favour in relation to the client’s trade request. Pre-hedging practices where market participants do not communicate their practices to clients in a manner that allows the client to understand the potential impact on the execution of their order are not consistent with the Codes. This includes practices where market participants do not have appropriate controls to monitor potential conflicts of interest, and do not have controls in place to limit access to confidential information relating to anticipated orders.