A Year in Review: How to optimise your approach to hedging and risk management

James Meek

As the volatility has subsided a little bit, we see brokers moving away from the B-book model towards the A-book model more. What that means for retail brokers, is they’re picking up on these key statistics like execution, which was not as important to them when they were running a 95%, 90% internalisation model. Now that they’re A-booking more, they’re starting to look at the execution again. You know, they’re looking at obviously the tight top of book, all of the usual stuff, but also liquidity management. So how do you allocate your different tags to different LPs and how does that liquidity mix interact with the flow, which is not something that was a concentration for them when they were B-booking so much. So as we move to this A-book model we try to hone in on those new statistics, the execution statistics, the liquidity management, things that weren’t so important before but now are becoming more and more important.

And brokers in the last few years, I mean, it’s been so volatile with COVID and the oil before that, it’s been a period where brokers have moved away from the A-book model so much that they’ve almost forgotten how to monetise an A-book model. So part of this year and, you know, as Lochlan has said, a lot of brokers came to us saying, “how is everybody else doing?” “Do we need to change something?” “What can we change?” A lot of it was us re-educating brokers on how to monetise that A-book model again, what are the key statistics they should be focusing on and how do you do the data management correctly to monetise that model.