Banks clamp down on pre-hedging over manipulation fears
Building a position in advance of a client order can help minimise market impact and keep costs down – or protect a dealer at its customer’s expense. Fearing a backlash, banks are now clamping down
Earlier this year, an experienced derivatives salesperson at a European bank stepped into a newly created role – a kind of gatekeeper for client information. It sparked a debate that the bank has since asked regulators to settle: if a trader chooses to build a position in advance of a big, incoming client order, is that OK?
Part of his new job, as the banker understood it, was to reinforce the
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