Regulatory rules will force buyside firms to make a trade-off between the cost of continuing to buy hedges in the over-the-counter markets and the additional risk incurred by using imperfect hedges in the listed futures market, analysts and buyside firms have warned.

Speaking at an industry conference hosted by Worldwide Business Research yesterday, Will Rhode, principal, director of fixed income research at Tabb Group, said: "Regulation is making its presence felt. The industry response will be product innovation, but this raises the issue of basis risk."