How We Do It: Market Practices
The Market Practices Committee examines market practices across asset classes. The Committee has recently examined the practice of pre-hedging as well as publishing a series of Spotlight Reviews on how to improve transparency and efficiency across the precious metals markets.
“I am delighted to actively contribute to the work of FMSB. It is a unique organisation representing the wider wholesale market community. The Market Practices Committee‘s work across asset classes allows us to bring together expertise that would not normally be in the room together to talk openly and identify and improve in areas where its right that the industry should lead.”
Kieran Higgins Chair, FMSB Market Practices Committee and Head of Global Finance and Rates SM, Citi
Work in Progress
Pre-hedging disclosure and consent
Pre-hedging is where liquidity providers aim to hedge inventory risk in an anticipatory manner. With the release of IOSCO’s Pre-Hedging Final Report, the Working Group will explore industry guidance on disclosure and consent (building on B2 and B3 of the IOSCO recommendations and existing industry codes and guidance including our Large Trades Standard).
Grey market trading
Grey market trading (GMT) is the conditional trading of securities relating to a new issue from the point of deal announcement until such securities are free-to-trade. This Statement of Good Practice (currently in Transparency Draft) is intended to promote a common understanding of the purpose, benefits and risks associated with GMT across issuers, investors and market makers; and identify key considerations for syndicate banks prior to deciding to conduct grey market trading in different contexts.
Market quotation mechanisms
Certain derivative contracts rely on third-party dealers to exercise expert judgement to provide a valuation at a specific point in time, typically as a fallback where market data or bilateral agreement is unavailable. These market quotation mechanisms are widely used across asset classes and contractual contexts, including close-outs, termination events, disrupted reference prices and collateral valuation.
In practice, dealers are often reluctant to respond to such requests due to the absence of financial incentives and concerns relating to conduct, litigation and benchmark-related risks. This can limit the effectiveness and reliability of market quotations as a valuation tool. FMSB is exploring whether behavioural guidance on responding to such requests could help support more consistent and constructive market practices.
New issuance swaps
In 2018, FMSB issued a Standard considering the conduct risks associated with risk management transactions for new issuances. Market practices around the pricing of new issuance swaps and associated anticipatory risk management approaches have evolved since 2018, potentially presenting novel conduct questions.
