Articles tagged by prime brokerage
After a number of years having to take reactionary measures in
response to new regulatory requirements, panellists at Profit & Loss’ Forex Network New York conference expressed
enthusiasm for a new wave of innovation that has the potential to re-shape FX
ADS Securities has announced three executive appointments at its headquarters and London offices.
Marco Baggioli has been nominated executive managing director, global head of brokerage, based in Abu Dhabi. He will report into ADS CEO and vice chairman, Philippe Ghanem. ...
Franck Mikulecz, managing director of the newly established clearing house FXCH, explains why
and how his firm is using distributed ledger technology to clear spot FX
Profit & Loss: You’ve launched a clearing house to clear spot FX using ...
ADS Securities has
appointed Louisa Kwok as its head of prime of prime sales.
Kwok, who officially started in her new position on August 8, is based in London and will report into
ADS’s CEO, James Watson.
The move comes ...
Saxo Bank is boosting its FX prime brokerage solution with the addition of a cross-collateralisation facility between PrimeXM sites in New York, London and Tokyo where it provides FX direct market access.
The facility will enable the firm’s prime clients with global liquidity needs to further optimise their collateral by synchronising balances and exposures across the three primary global FX locations.
Saxo says the cross-collateralisation facility is a natural step in the evolution of the service which will help its clients avoid over allocation of capital by giving them the ability to use a single pool of collateral across the three major global FX sites, while maintaining a pre-trade credit check per site.
Louisa Kwok, head of prime of prime sales and products at ADS Securities London, explains to Profit & Loss deputy editor, Galen Stops, why there’s room for numerous different prime services models in the FX market.
With many of the traditional FX prime brokers (PBs) being increasingly selective about who they will offer their services to, this has created a gap in the market that many firms appear eager to fill. Subsequently, numerous prime services offerings are being touted to market participants under the banner of prime-of-prime.
Sucden Financial has appointed Noel Singh as head of e-FX business development, where he will lead the firm’s growth of its non-bank FX prime brokerage business.
In his new role Singh will be tasked with targeting institutional firms, including asset managers, hedge funds and prop trading houses.
Sucden says that his appointment comes as part of a significant investment plan to expand the company’s FX business. This plan includes the introduction of Cobalt DL, utilising blockchain derived technology, which the firm claims can significantly cut post-trade costs and mitigate risk when trading across multiple venues.
As buy-side workflows are becoming complex, these firms are looking for ways to simplify how they view and manage them, claims Basu Choudhury, business intelligence, Nex Traiana.
He says that, whereas in the past buy side firms used to probably have only one prime broker (PB), today they might have four or five prime brokers, or even have bilateral relationships. Further, when they execute they might do so via an anonymous venues or they might trade against another buy side firm that is using a prime broker.
“So what we’re seeing and hearing is that they want a single panel where they can see their PB relationships and bilateral, and even clearing at some point within one dashboard, one platform, where they can manage the matching, [confirmations] and settlements,” he says.
The retail FX sector has long bothered me, as regular readers can attest, and my distaste for many providers in the sector was only heightened when one offered me “expert comment” on what will likely to happen to the euro in the wake of Sunday’s French election result…on Wednesday. This is so detached from the reality of the modern FX market that it makes me wonder how this firm thinks it is providing good service by offering “commentary” almost four days after the results?
Noble Bank International has launched its initial service, Noble FX, which is designed to allow its clients to create their pools of credit, enabling counterparties to clear, net and settle spot FX and precious metals in real-time.
The firm says that its fully customisable and configurable rules that guide each pool will provide users of the service with improved flexibility and functionality in post-trade processing. In addition, Noble claims that its platform introduces an “industry changing” approach to reducing counterparty settlement risk for OTC trading.
Following his retirement from Citi, where he spent nearly 30 years and most recently served as global head of G10 FX, James Bindler, reflected at Forex Network London about the changes that he’s observed in the industry.
He’s also made a number of predictions regarding its future.
1. The line between banks and non-banks will continue to blur
“As always with all these things, it comes from both sides of the equation. Banks will get faster and high-frequency traders will seek capital to backstop their risk taking activities,” said Bindler.
Discussing the challenges facing market makers, Bindler noted that the cost of FX trading is generally rising, particularly for firms that need to use prime brokers to access the market.
Market and regulatory reforms are forcing buy side firms to look for new ways of accessing collateral, funding and liquidity, according to a new report from BNY Mellon and PWC.
Based on a survey that 120 buy side respondents with a combined $12 trillion in AUM participated in, the report claims that “access to high-quality collateral, funding and liquidity is not only a pressing concern, but has emerged as the essential new performance driver for the buy side”.
The current challenge with accessing these is twofold.
Rosario Ingargiola, founder and CEO of OTCXN, argues that accessing wholesale liquidity is one of the biggest challenges in the FX market today that could be alleviated by fintech solutions.
Speaking about different approaches to the FX market by fintech firms, Ingargiola says that one strategy is to look at areas where new technologies can reduce costs in terms of how firms operate and another – which he says OTCXN is pursuing – is to use technology to change the way that firms operate altogether.
The area where he sees the biggest opportunity to change the way that firms operate using fintech solutions is around using credit to access the FX market.
Marco Baggioli has been appointed as COO at ADS Securities.
He is currently the firm's executive managing director – global head of brokerage, and in his new role will take on additional direct line responsibility for operations, legal and compliance, product and change, IT, marketing and HR across the firm's business lines.
Baggioli will continue to be based in ADS Securities’ Abu Dhabi head office reporting into CEO, Philippe Ghanem, and will also have dotted-line management responsibility for ADS Securities’ London and Hong Kong subsidiaries as a board director.
The Q3 edition of Profit & Loss will feature an in-depth special report on FX prime services, looking at the significant changes that have occurred in this segment of the market and how these will impact trading firms in the future.
But we want to hear from you about your expectations regarding the future of FX prime services, which is why we're asking you to fill out this 1-2 min multiple choice survey: https://www.surveymonkey.co.uk/r/PrimeServices
All survey responses will remain anonymous, but should you choose to include your email address at the bottom of the survey you will receive a free PDF of the special report when it is published in September.
Over the past few years, some FX prime brokers have gone from aggressively competing for market share to off-boarding clients and increasing their fees. What happened to make the pendulum swing so dramatically, and is it due for another reversal? Galen Stops reports.
Relatively speaking, it wasn’t all that long ago that banks were aggressively trying to build out their FX prime brokerage (FXPB) businesses and competition was fierce. This precipitated a race to the bottom in terms of fees by some FXPBs. Numerous market sources claim that Morgan Stanley was at the forefront of this race, although they note that a number of major FXPB players were not far behind.
It’s no secret that recent regulatory requirements have put FXPB business models under increased pressure. But some firms also see regulation as an opportunity to change how their businesses operate in order to win new business, as Galen Stops reports.
When questioned about the extent to which a combination of the Basel III regulations and the SNB
event had caused a contraction in the FXPB space, there was some pushback from certain service providers.
“I think that there’s a misperception that there has been a wholesale contraction in the FXPB space,” says John O’Hara, global head of FXPB and FX clearing at Societe Generale.
What are the biggest challenges still facing FXPBs today and how can they be overcome? Galen Stops takes a look.
There’s no getting around the fact that regulation has changed the economics of the FX prime brokerage (FXPB)
business, and not for the better.
“You can classify PB costs into three basic categories – technology, human resources and direct transactional costs,” says Sanjay Madgavkar, global head of FXPB at Citi.
The first two of these are fixed costs that an FXPB has to pay, but the new regulations under Basel III have made it more expensive for banks to provide FXPB services to certain clients, meaning the overall profitability of some portfolios has fundamentally declined.
In a recent survey by Profit & Loss, 29% of respondents cited balance sheet strength as the most important factor when selecting a prime service provider. Meanwhile, 19.9% said that pricing was the most important factor and 14.5% said that the technology available at the prime service provider was the key motivator when selecting a prime.
The product range offered and the existing relationship with the prime provider were both picked as the most important factor by 13% of respondents. Only 3% said that the leverage available is the most vital consideration in a prime service provider. Meanwhile, 7.6% of respondents chose to specify alternative priorities when selecting a prime service provider, and some of their comments are illuminating.
It’s a valid question to ask FXPBs what constitutes a “good” client these days. Post-Basel III, firms taking big positions in non-spot products are going to consume vastly more balance sheet and capital than a firm trading only spot in smaller amounts, which can easily be serviced with a relatively little net open position (NOP).
This obviously suggests that, for example, an HFT deploying a spot-only strategy could potentially be a more attractive business proposition than a large macro fund trading longdated NDFs or options products.
However, speaking to a number of FXPBs, it immediately becomes apparent that such a view is too simplistic. One FXPB head says that this basic analysis is correct, but only assuming a legacy pricing model, which is derived primarily by frequency and size of transaction activity.
“Prime Brokerage Participants should strive to monitor and control trading permissions and credit provision in Real Time at all stages of transactions in a manner consistent with the profile of their activity in the market to reduce risk to all parties.” – Principle 41
Prime Brokerage Participants should strive to develop and/or implement robust control systems that include the timely allocation, monitoring, amendment, and/or termination of credit limits and permissions and adequately manage associated risks.
• Prime Brokerage Clients should strive for Real-Time monitoring of their available lines and permitted transaction types and tenors so that only trades within permitted parameters are executed.
Numerous firms have spotted an opportunity to capitalise on the current credit constraints in the FX market by offering a “prime-of-prime” solution. But what are the different models being operated by these firms and what should market participants be looking at in order to spot the real deal? Galen Stops reports.
It’s no secret that over the past couple of years, some of the biggest FX prime brokers (FXPBs) have been off-boarding
existing clients, while simultaneously raising the bar in terms of the capital requirements for new clients.
But while the willingness of these banks to extend credit has reduced, the need for market participants to access it in order
to trade the FX market has not, as noted in the introduction to this special report.
So we’ve just published our Q3 edition of Profit & Loss magazine, which includes our prime services special report, and I wanted to share some thoughts about one segment of it.
When I first started the report I was very negative on the prospects for FX prime brokers, over the eighteen months or so I’d heard so many complaints about credit constraints, about offboarding – I don’t think that was even a phrase that I’d heard prior to SNB – and the general retrenchment of FXPBs.
Now obviously SNB was a catalyst for a lot of these issues, but really it just exacerbated a trend that already existed and this was caused by the introduction of new regulations that made it more expensive for banks to offer FXPB services to a lot of clients.
Galen Stops speaks to market sources about the feasibility of splitting prime services into credit provision and trade processing.
Capitolis is the latest venture headed by Gil Mandelzis, the former EBS BrokerTec and Traiana CEO. Mandelzis co-founded the company along with his former Icap and Traiana colleague, Igor Teleshevsky, and former Thomson Reuters CEO, Tom Glocer in New York earlier this year. Mandelzis operates as CEO of the firm, Teleshevsky is VP of R&D and Glocer is listed as an executive chairman.
Profit & Loss talks to Zeus Shaikh, founder of Bear Shaikh, about the legal challenges associated with FX prime brokerage and how firms should be approaching blockchain technology.
Profit & Loss: You now run a “legal consulting firm”. What is that and how does it differ from a typical law firm?
Zeus Shaikh: At Bear Shaikh we’re looking to disrupt the way that financial services firms are serviced. Although there is some overlap between what we and law firms do, there are services that I offer that a law firm does not.