IOSCO consults on pre-hedging practice

The consultation document sets out a proposed definition of pre-hedging and a number of recommendations for regulators as well as clients.

Pre-hedging is a risk management tool used primarily for larger transactions in order to manage order flow, reduce market impact and improve client outcomes in terms of both liquidity and price.

It does, however, give rise to potential market abuse risk including:

  • front running;
  • the misuse of information (insider dealing);
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