The Australian Securities and Investments Commission (ASIC) has published a letter to CEOs of market intermediaries offering guidance on pre-hedging practices in Australia.。

Pre-hedging is a practice in financial markets that can help markets operate efficiently by facilitating transactions that could otherwise have a significant impact on market pricing。

ASIC acknowledges the role of pre-hedging in the market, including managing the risks associated with prospective customer orders by market intermediaries, and may help provide liquidity and execution for customers。However, it can also create a significant conflict of interest between the client and the market intermediary, who actively transacts when they have confidential information about the client's expected order or transaction.。

ASIC expects that market intermediaries undertaking pre-hedging will:

1. Document and implement policies and procedures regarding pre-hedging to ensure compliance with legal requirements。In developing these policies and procedures, it is best to consider the circumstances under which pre-hedging may help achieve the best overall results for customers;
2. effective disclosure of the execution and pre-hedging practices of intermediaries to clients in a clear and transparent manner;
3. To the extent practicable, with the express and informed consent of the client prior to each transaction, a clear expectation of the purpose and potential risks of pre-hedging (e.g., adverse effects on price)。For complex and / or large transactions, intermediaries should take additional measures to inform clients of the rationale and strategy for pre-hedging.
4. Monitor implementation and client results, and strive to minimize the impact of pre-hedging on the market;
5. Appropriate restrictions on access to confidential customer information, prohibition of misuse of confidential customer information, and adequate management of conflicts of interest related to pre-hedging。It is essential to establish, monitor and regularly review appropriate physical and electronic controls to keep up with changes in the business risk profile;
6. establish sound risk and compliance controls, including transaction and communications monitoring arrangements, and effective governance and regulation of pre-hedging activities;
7. Record the key details of each transaction for pre-hedging (including the procedures adopted, team members involved and client results) to strengthen supervision, monitoring and supervision;
8. Post-trade review of execution quality of complex and / or large transactions。This work should be carried out by an independent and suitably experienced member of the regulatory team。