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

If a trader chooses to build a position in advance of a big, incoming client order, is that OK?

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 Chinese wall that separated the bond issuance desks and the swaps desks. The swaps traders were soon