On Thursday 21 November, the International Organization of Securities Commissions (IOSCO) published a consultation report on its recommendations relating to pre-hedging practices. 

Pre-hedging is used by dealers to manage risks associated with anticipated wholesale principal orders in relation to primary market offerings and secondary market transactions. This can occur across various markets, including securities and derivatives, on trading venues and over the counter (OTC) markets and encompasses a range of asset classes such as equities, fixed income, currencies and commodities. 

The consultation report offers a definition of pre-hedging and proposes a set of recommendations to guide regulators in determining acceptable pre-hedging practices and managing the associated conduct risks effectively. Feedback is sought on the proposed definition, the proposed recommendations and whether the recommendations need to be adapted to specific circumstances, for example in relation to potential differences of pre-hedging practices and internal non-electronic transactions and in the context of electronic trading, including competitive requests for quotes (RFQs).

The consultation closes on 21 February 2025.

If you have any questions, please contact Aniqah Rao.