We need to talk about pre-hedging

Dealers claim it’s a vital tool for managing risk. Clients say it’s open to abuse. How should regulators treat the problem child of financial markets?

As the African proverb goes: ‘Those who ask questions cannot avoid the answers.’ Cynics might observe that the saying fails to apply to the European Securities and Markets Authority, after the regulator released the results of its year-long review of pre-hedging.

In its final report issued in July, Esma shied away from a ban or prescriptive rules on the controversial activity. It merely concluded that it would assist in any future global efforts to create regulatory principles.

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