What Is ‘Adverse Selection’ in the Context of ‘Last Look’?

Adverse selection in 'last look' occurs when the liquidity provider only executes trades that are favorable to them, rejecting those where the market has moved against their quoted price. The client is unknowingly being selected against, as the only trades that execute are those where the client's order was based on stale information or where the market has moved in the provider's favor.

This results in the client consistently getting worse execution.