Trade Matching and “Last Look” in the Wholesale Electronic Foreign Exchange and Commodities Markets
March 30, 2018
The purpose of this notice is to explain certain trading practices of JPMorgan Chase & Co. and its affiliates (together, “J.P. Morgan”) when acting as a market maker, on a principal basis, in the wholesale electronic foreign exchange ("FX")1 and commodities2 markets.
This notice provides information about certain pre-trade controls, collectively referred to as “Trade Matching”, that are applied by J.P. Morgan when clients electronically submit requests to trade against J.P. Morgan’s prices, including controls sometimes referred to as “Last Look”.
How does J.P. Morgan make markets in the wholesale electronic FX and commodities markets?
J.P. Morgan streams continuously updating indicative FX and commodities prices via J.P. Morgan Markets™ and certain other electronic trading platforms (“Electronic Trading Platforms”). These streamed prices may be revised or withdrawn by J.P. Morgan without notice, may vary by client, and may differ from the FX and commodities prices quoted by J.P. Morgan or other market makers for identical or similar transactions.
A client may submit a request via an Electronic Trading Platform to trade FX or commodities with J.P. Morgan at a streamed price or at a price specified by the client (any such request, a “Trade Request”, and any such price, a “Requested Trade Price”). Once received by J.P. Morgan, each Trade Request will undergo Trade Matching, as described below.
What is Trade Matching and what factors are considered by J.P. Morgan during Trade Matching?
Upon receipt of a Trade Request, J.P. Morgan undertakes a two-step process in order to determine whether to accept or reject the Trade Request: first, J.P. Morgan assesses the validity of the Trade Request from operational and credit risk management perspectives (the “Validity Check”) and, second, J.P. Morgan determines whether the Trade Request may be executed at the Requested Trade Price (the “Price Check”). The application of these pre-trade controls is referred to by J.P. Morgan as “Trade Matching” and, with respect to the Price Check, is sometimes described as “Last Look”.
The Validity Check and Price Check are described in further detail below:
- Validity Check - When a Trade Request is received, J.P. Morgan confirms (i) that the transactional details contained in the Trade Request are appropriate from an operational perspective3 and (ii) that the legal entity submitting the Trade Request has sufficient available credit with J.P. Morgan to enter into the transaction contemplated by the Trade Request. J.P. Morgan may reject the Trade Request if the Trade Request fails the Validity Check.
- Price Check - Following a successful Validity Check, J.P. Morgan compares the Requested Trade Price against the then-current J.P. Morgan client-specific price at which J.P. Morgan is willing to trade, to determine the extent of difference between the two. J.P. Morgan will reject the Trade Request if any such difference exceeds a client-specific, pre-defined tolerance level set by J.P. Morgan (any such client-specific tolerance level, the “Price Movement Threshold”)4 and will accept the Trade Request if any such difference is within the Price Movement Threshold.
Following the Trade Matching process, J.P. Morgan will endeavor to notify the client, to the extent technologically feasible, as to whether the Trade Request has been accepted or rejected. If J.P. Morgan accepts the Trade Request, J.P. Morgan will enter into an FX or commodity transaction (as applicable) with the client at the Requested Trade Price5, subject to any applicable agreement(s) between the client and J.P. Morgan.
Why does J.P. Morgan apply the Validity Check?
J.P. Morgan applies the Validity Check in order to confirm that the Trade Request is actionable from an operational perspective, as described above, and that any resulting transaction will be within J.P. Morgan’s credit tolerance for the relevant client.
Why does J.P. Morgan apply the Price Check?
The Price Check is intended to protect J.P. Morgan, as a liquidity provider in the electronic FX and commodities markets, against latency inherent in electronic communications or erroneous price formation generated by external systems.
Does J.P. Morgan impose latency buffers or other delays during Trade Matching in order to observe future price movements?
No. While certain latencies and delays are inherent in processing Trade Requests, J.P. Morgan does not impose latency buffers or other delays during Trade Matching in order to observe future price movements.
Are Price Movement Thresholds symmetrical?
Yes. Price Movement Thresholds are symmetrical – this means that the same client-specific tolerance level applies to price differences in either direction.
Does J.P. Morgan engage in hedging activity specific to a particular Trade Request during Trade Matching?
No. While a particular Trade Request is undergoing the Trade Matching process, J.P. Morgan does not engage in hedging activity specific to such Trade Request.
Does J.P. Morgan communicate to its clients the reason that a particular Trade Request was rejected?
When a Trade Request is rejected, J.P. Morgan endeavors to communicate to the client, to the extent technologically feasible, the reason for the rejection. Please direct any questions concerning trade rejections to your J.P. Morgan representative.
What data can J.P. Morgan provide to its clients concerning its Trade Matching process?
Upon request, J.P. Morgan can provide to our clients anonymized, aggregate statistics on Trade Request response times and rejection rates.
Which Electronic Trading Platforms are relevant to this notice?
This notice covers J.P. Morgan Markets™ and certain other Electronic Trading Platforms as determined by J.P. Morgan in its discretion from time to time. Please direct any questions concerning which Electronic Trading Platforms are relevant to this notice to your J.P. Morgan representative.
If you have questions concerning J.P. Morgan’s dealings with you, we encourage you to contact your J.P. Morgan representative. This notice is also available at www.jpmorgan.com/disclosures and may be updated from time to time without notice to reflect changes to J.P. Morgan’s practices and services.
1. FX includes spot, forward, non-deliverable forward, options, and swap transactions of foreign exchange products traded with J.P. Morgan.
2. Commodities include spot, forward, options, and swap transactions of agriculture, energy, and metals products traded with J.P. Morgan.
3. For example, and without limitation, J.P. Morgan confirms that (i) the currency pair or commodity specified in the Trade Request is one in which J.P. Morgan is prepared to transact and (ii) the client submitting the Trade Request has been appropriately enabled on the relevant Electronic Trading Platform.
4. Price Movement Thresholds may be revised by J.P. Morgan without notice and may vary by client.
5. Subject to the potential application of “price improvement”. “Price improvement” refers to the discretionary practice of accepting a Trade Request at a price that is more advantageous to the client than the Requested Trade Price, where the relevant Trade Request would otherwise have been rejected as a result of the application of the Price Check. Where technologically feasible, J.P. Morgan may, in its discretion, offer “price improvement” to certain of our clients.
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