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

Pre-hedging is where liquidity providers aim to hedge inventory risk in an anticipatory manner. Following a Spotlight Review – Pre-Hedging: case studies, further work on this topic, considering final IOSCO guidance, is being considered for 2025. Specific follow-on work is also being conducted on auto pre-hedging and new issuance swaps.

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. Given the evolution of market practices this area, an FMSB Working Group is developing a Statement of Good Practice intended to promote a common understanding of the purpose, benefits and risks associated with GMT across issuers, investors and market makers. Additionally, it will consider GMT restrictions and potential conflicts of interest for firms who are also on the syndicate for the new issuance.

Dealer polls

Dealer polls are a common fallback in contractual documentation. They were once a useful tool but have decreased in popularity due to uncertainty and conduct risks associated with their operation as well as lack of incentives to counterbalance these risks. The fallback may therefore be ineffective given the reluctance of dealers to provide quotes when called upon. Clear guidance on this topic could enhance market effectiveness.