In 2023, TradingHub published a series of articles and case studies that challenged the market to confront the risks of manipulation in primary market and M&A-driven transactions. We highlighted the blind spots in surveillance solutions and dissected enforcement actions that revealed how private fixings, where risk is transferred off-exchange at a price set by reference to a screen price or fixing in another market, create fertile ground for abuse. Our work contributed to industry debate, especially around the theme of pre-hedging, and called for a risk-based approach to managing these challenges.
In recent weeks, the International Organization of Securities Commissions (IOSCO), the global standard-setter for securities regulation, has released its final report on pre-hedging. This report provides a comprehensive set of recommendations to guide regulators and market participants. In this article, we summarise IOSCO’s recommendations (A1 to B6), contextualise them with real-world enforcement cases, and reflect on what this means for the future of market integrity.
IOSCO’s guidance is structured around two pillars: the use of pre-hedging (A1–A4) and the management of conduct risk (B1–B6). Here’s what each recommendation means in practice:
Connecting IOSCO’s Guidance to Real-World Risks
The IOSCO report’s recommendations are not theoretical, they address risks that have already materialised in the market. The case studies that we produced dissected enforcement action against numerous global investment banks, illustrating how failures in disclosure, risk management, and supervision can lead to client harm and regulatory action:
These cases underscore why IOSCO’s focus on disclosure, client consent, and robust controls is so critical.
While enforcement actions have focused on fixed income and FX, the underlying conduct risk is not confined to those markets. Any scenario involving a private fixing, where a price is set by reference to a screen, creates the opportunity for abuse. And, while pre-hedging is appropriate in certain circumstances, any trading ahead of that fixing with the intention to influence the reference price is, in effect, unauthorised pre-hedging. IOSCO’s recommendations provide a framework for managing these risks across asset classes and jurisdictions.
Supporting Market Integrity: TradingHub’s Continued Focus
The release of IOSCO’s report marks a significant step forward in clarifying expectations around pre-hedging and market conduct. For many market participants, these recommendations will feel familiar, reflecting themes and risks that have been the subject of industry discussion and regulatory focus for some time.
One area worth highlighting is Recommendation A4, which calls for minimising market impact and maintaining market integrity. This is not just a qualitative exercise (e.g. confirming disclosures), it’s also a quantitative challenge. Firms need to understand the quantitative effect their pre-hedging has on observable prices and liquidity and take the necessary steps to minimise their market impact.
As the regulatory landscape continues to evolve, we remain committed to supporting our clients with advanced surveillance solutions, practical insights, and a risk-based approach to market integrity.
For those interested in exploring these issues further, we invite you to revisit our original articles and case studies:
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