P&L Report Card

This remains a strange area in many ways because while we constantly hear about clients being told they are not big enough for the prime broker to retain them, and of PBs cutting the client tail, just about every PB out there continues to affirm their commitment to building the business! Clearly the approach is a targeted one, but we do have to wonder if the PBs are not in fact, chasing the same relatively few number of clients and therefore the aim of growing the business will not be fulfilled?

Either way, to overlay the prime-of-prime industry that has ballooned in recent years, there is still a healthy bank prime brokerage industry. Citi remains the biggest dog on the block, in spite of a stumble late last year and Click is still one of our favourite products thanks to its rich mix of graphics and data.

Elsewhere, Deutsche Bank is in the midst of a rebuild of its FXPB interface and the early signs, especially around the blotter functionality, are good – the issue for Deutsche, once again, may be the broader bank’s future and what impact that may have on its investment budgets. Overall though, with FX targeted by the bank’s board as an area of strength, we are optimistic the development roadmap will survive.

Probably the other major player in this space to update us this year was UBS and the more collaborative approach being taken in the broader FXPB industry in terms of dealing with third party vendors gives the bank an advantage in the openness of Neo. Interestingly, UBS is focusing a lot of its efforts on client-to-client matching within its FXPB business, whereas others are taking the approach of positioning their internal ECN closer to the trading business.

Where the FXPB business sits within the broader organisation remains varied across the industry, with some positioning it as a standalone business, others within FX and others within the broader markets business – not just FICC, but markets generally. Often this signals close collaboration with the equities franchise and while we remain sceptical of this approach in the broader trading business, in PB it appears to work.

One final name to put in the mix here is Barclays. As part of its broader efforts to rebuild its FX business, the bank has leveraged its franchise, particularly in equities and futures to scale the FXPB offering by placing it under the wing of its Agency Derivatives Services business. While the immediate benefits appear to be to the bank in terms of how it rolls out products and delivers client service, these benefits will undoubtedly trickle down to client level.

Winner – NatWest Markets

For the first time in a while we have a new winner in the FXPB category and this one was very much driven by user feedback. We probably had more mentions of NatWest Market’s FXPB as an excellent service from users than any other aspect of awards aside from JP Morgan’s Algo Central.

The real strength in the NatWest Markets FXPB business is in its organisational structure, which is underpinned by the flexible bedrock of Agile Markets. The bank has gone in a different direction to most of its peers in that it has not relied upon third party vendors for the infrastructure supporting its PB business, although that option remains of course given the open nature of Agile.

Rather NatWest Markets took the decision some time ago to own the technology and this has allowed it to build multiple models to service multiple different client types. This in turn has seen it grow customer numbers but in a balanced fashion – there has not been a surge of hedge funds into the business at the expense of other client segments.

Wider and well-publicised problems at the bank appear to be behind it thanks psychologically to the dumping of the RBS brand and physically to the financial recovery of the parent bank and this has meant customers who were traditionally fans of the bank’s PB offering were able to take a more serious look.

The flexible nature of the offering means that while traditional PB clients such as leveraged accounts have the full service, so do, thanks to the tweaks to the model, retail aggregators, prime-of-primes, local banks, high frequency traders and even asset managers. Just as algo providers have worked hard to deliver a strategy for every type of client has NatWest created a PB business model that looks like a bespoke service while overlaid on a single technology infrastructure.

Reporting models are good (we would like a few more visualisations if we are being critical – clients seem more ambivalent on this at the moment) as is the permissioning framework that allows different users to see the piece of the puzzle they are intended to see.

Top level KPIs are displayed for client’s management and the feedback from users repeatedly highlighted the bank’s ability to respond quickly to requests for new functionality or bespoke reports.

These awards have the strapline “Eye on the Client” and nowhere in the FX business is this more critical than in prime brokerage. By thinking outside the box and taking what might have been seen as the riskier route to strike out alone on the technology front, NatWest Markets has managed to build what is probably the most balanced client book out there – and one that is growing quickly. It operates a prime brokerage model that most closely reflects the heterogeneous nature of the modern FX markets – and it does it very well indeed.

Galen Stops

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