Lies, Damn Lies and Pre-hedging
As electronic liquidity providers become more ubiquitous in cash equity trading, they increasingly compete with traditional market makers, namely the trading arms of large global banks. According to a document obtained by Global Trading, Citadel Securities had $18 billion of trading capital in March 2025. Compare that with Goldman Sachs, which had $100 billion of common equity tier 1 capital and a $2 trillion balance sheet.
This difference gives the banks a crucial advantage – they can use their balance sheets to support outsized over-the-counter derivatives positions alongside their cash securities trading. This allows them to compete for lucrative mandates such as share buyback VWAP trades, that elude the newer ELPs.
Now, one such ELP, Susquehanna has teamed up with consultant Acuiti to release a report complaining about an aspect of banks’ derivative activity: so-called pre-hedging. Susquehanna is tapping into buyside disquiet about RFQs and IOIs that move the market – a sign, some say, that banks are pre-hedging more than they should. It’s a “very tricky subject”, one buyside trader told Global Trading.
And don’t forget that ELPs have a vested interest of their own in making such arguments.
