FMSB opens debate on pre-hedging

The Financial Markets Standards Board is shining the spotlight on pre-hedging. According to the FMSB, there is uncertainty about how firms can manage risks relating to anticipated client orders. The case studies in the FMSB’s paper will likely trigger a conversation in the industry about the circumstances in which it is appropriate to undertake pre-hedging.

The FMSB’s Spotlight Review considers several case studies relating to pre-hedging. The case studies are intended to advance the debate on pre-hedging by identifying the key factual nuances of each scenario and the considerations which liquidity providers might need to balance, suggesting practical guidance to the existing regulatory framework and industry standards. The paper does not attempt to codify standards of behaviour, although the FMSB will keep under review whether this would be beneficial.

This FMSB paper will be of wide interest to participants in wholesale markets. Subscribers to the Linklaters knowledge portal can read our more detailed client briefing here: FMSB turns spotlight on pre-hedging. Do get in touch with us if you would like to discuss the paper.