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Momtchil Pojarliev
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Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

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November 8, 2005

UBS Backs Off Pre-Hedging

By Editorial Staff

The pre-hedging controversy surrounding guaranteed VWAP bids prompted UBS to send a letter to its clients that discloses its trading practices.

The full-disclosure letter says that UBS does not use the risk reducing tactic. In fact, UBS promised never to use pre-hedging techniques.

The pre-hedging controversy surrounding guaranteed VWAP bids prompted UBS to send a letter to its clients that discloses its trading practices.

The full-disclosure letter says that UBS does not use the risk reducing tactic. In fact, UBS promised never to use pre-hedging techniques.

"We will never use knowledge of portfolio orders to position our trading books in anticipation of an impending trade whether or not the order is ultimately awarded to UBS," the investment bank wrote in a letter to clients

Bulge-bracket desks are revising their guaranteed price/pre-hedging practices. Deutsche Bank last year sent a letter to clients stating that employees with knowledge of the contents of a client's account will not deal in the securities from the time the order is placed to the time the portfolio changes, unless the client agrees to this.

These moves follow actions by the United Kingdom's Financial Services Authority earlier this year. It fined Morgan Grenfell, Deutsche Bank's brokerage subsidiary, for failing to inform a client that it was engaging in pre-hedging.

This has been happening sometimes, regulators say, when program trades are executed without providing details to the money management client.