Noble Bank International recently launched with a new business model aimed at alleviating the current credit constraints in the FX market. Will it be a “game changer” for the industry? Galen Stops takes a look.
If every new product or service launch that claimed to be “game changing” actually was, the FX industry would be a dizzying place to work in, such is the popularity of this phrase and its variant forms.
As a result, it was hardly surprising to see Noble Bank International (Noble) hail its new real-time, post-trade FX service as “industry changing”, when its official launch was announced last month. And yet, if the Noble model manages to gain significant traction within the FX industry, it could have a significant impact on how the market operates.
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.
There has been a substantial shift in FX prime services over the past two years: some FX prime brokers having been pulling back from the space, prime-of-primes have been expanding to fill the gap and now new firms are coming to market offering potential new solutions to the current credit constraints in the market.
But how will FX prime services evolve from here?
For the Q3 edition of Profit & Loss, we launched a survey to gauge market sentiment regarding this question. It’s not too late to have your say, the survey will close at midnight on July 31st : https://www.surveymonkey.co.uk/r/PrimeServices
The latest issue of Profit & Loss is headlined by a special report on the prime brokerage and prime-of-prime industry. The report also looks at newer models that could disrupt the current industry landscape. As part of the report, which can be read in its entirety in the Q3 issue, Colin Lambert spoke to Gavin White, CEO of Invest Global, who believes the current environment in financial markets is presenting opportunities for firms in prime services. Moreover, White argues, we have seen this environment before...
"Prime-of-Prime" has become something of an umbrella term these days, used by many firms operating very different business models. So Profit & Loss asked a number of firms that place themselves in this category exactly what constitutes a "true" prime-of-prime service provider.
Galen Stops takes a look at some of the potential risk concerns associated with the prime-of-prime model in FX.
I n a recent survey conducted by Profit & Loss 57.25% of respondents said that they think the trend towards more firms using prime-of-primes (PoPs) rather than traditional FX prime brokers (FXPBs) could increase the impact of a shock event.
This is in contrast to 27.48% who said that it won’t and 15.27% who think the impact of a shock event would be unaffected by this change. The logic underpinning this concern is based on the fact that risk is increasingly being pushed towards less well-capitalised institutions.
The traditional assumption in the FX industry is that accessing a bank prime broker is always preferable to using a prime-of-prime. Galen Stops speaks to service providers seeking to challenge that assumption.
“One thing that’s quite interesting is that in the mindset of the FX industry, there’s a certain hierarchy,” says Jonathan Brewer, managing director of IS Prime. “There’s basically an assumption that if you want to participate in the FX market, then the pinnacle provider that you should aim for is a tier one prime broker (PB), and then you should only go and look for a prime-of-prime if, for whatever reason, your face didn’t fit at a tier one PB.”
Although to some degree this hierarchy might be psychologically driven, there are also very valid reasons why market participants might prefer an FXPB to a prime-of-prime (PoP) offering.
They may both have been a long time in the pipeline, but the wait for CME and LCH’s introduction of OTC FX options clearing services is nearly over. Yet with both due to launch before the end of 2017, just how much appetite is there likely to be from the prime services sector to support these initiatives? Nicola Tavendale writes.
While there are many different ways institutions can try to reduce their capital costs, clearing is by far the most efficient, according to Paddy Boyle, head of ForexClear at LCH. And even before the advent of the uncleared margin rules, there were already significant benefits to clearing non-deliverable forwards (NDFs), both in terms of enhanced risk management and obtaining operational and capital efficiencies, he adds. “Since the uncleared margin rules were implemented in September 2016, clearing has become a much bigger priority for many firms,” Boyle says.
Saxo Bank has launched a new, full amount execution infrastructure for its prime-of-prime (PoP) service.
Running on dedicated infrastructure through the firm’s direct market access (DMA) liquidity hubs in London and New York, Saxo says the full amount execution capability provides lower market impact for large orders in FX and precious metals.
Demand has been driven by growth in small- to mid-sized institutional clients looking for direct market access and liquidity optimisation services.
Lucian Lauerman, global head of electronic distribution, comments: "We have grown our prime-of-prime business quite significantly and we are meeting increasing client demand for execution in large order sizes. To support efficient execution and sustainable liquidity access, we have set up a dedicated infrastructure allowing clients to execute in full amount through liquidity connectivity in both NY4 and LD4. This offers clients better pricing and lower market impact on larger tickets.”
Raj Sitlani, co-founder of IS Prime and managing director of ISAM Capital Markets, sat down with Profit & Loss in Shanghai to talk about the challenges associated with expanding into Asian FX markets and why technology remains the key differentiator for prime-of-primes.
Profit & Loss: So what’s your business focus in Asia?
Raj Sitlani: We have a large market share in Australia but, until recently, never truly had the manpower or the resources to crack the broader Asia market. However, there’s a very big opportunity in the region for us to provide our flagship product – which is a prime-of-prime service with aggregated FX liquidity – and so last year we set up a Hong Kong office through which we can build out our presence in North Asia and China.
On a panel discussion entitled “The Twists and Turns of FXPB”, speakers at Profit & Loss Forex Network Chicago discussed the possibility for technology to radically re-shape the prime services ecosystem.
Technology’s impact on prime services was the jumping off point for the last panel at Profit & Loss Forex Network Chicago. Peter Plester, head of prime brokerage at Saxo Bank A/S highlighted the impact that technology had already in terms of risk management in this segment pointing out that the traditional plumbing for starting up a prime broker was to connect to NEX Traiana and the various ECNs and have STP for tickets, but that the central risk system internal to the PB was fairly manual.
Ashraf Agha has been appointed by Stater Global Markets as a strategic advisor, focusing specifically on operations and compliance.
Agha has almost 30 years' experience in the financial sector, with roles including head of treasury at Saxo Bank, COO for the FX business at Marex Spectron, and co-founder and executive director of CFH Clearing, where he was accountable for all operations. He is also currently a board member of the regtech firm, muinmos.
Ramy Soliman, CEO at Stater, says: "Appointing Ashraf as a strategic advisor underpins our strategy of leveraging significant institutional experience to fast-track our growth.