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SEB, the largest Nordic FX provider, with a
Luxembourg-based currency multi-manager fund,
entered the FX prime brokerage market in 2006 and is
developing a global platform, alongside its long-standing
futures clearing and equity prime brokerage businesses.
Mark McDonnell, head of FX prime brokerage at
SEB Merchant Bank, has been building out the bank’s
FX prime brokerage offering, deploying SEB’s cutting
edge technology as an FX player, since joining the
bank in April.
He says: “Many were shocked at how quickly the credit
quality of some the main prime brokers deteriorated in
a very short period of time and so clients are shopping
a little bit more cautiously, doing more due diligence
before allocating prime brokerage and taking time to
investigate, legally and from a credit perspective, how
Zoran Mavrinactheir collateral and margin is held and ideally looking
“Reporting has improved so that everything is on one screen,to put a bankruptcy-remote solution in place to
and positions can be quantified more easily.”mitigate any direct credit risk they might have with a
prime broker. Also clients are looking to diversify into
one or two additional providers in order to decrease question marks over managers’ long-term profitability
their dependency on one provider and ensure a and over the growth of algorithmic trading in FX and
prudent business continuity strategy.” whether the growing number of models will prove
profitable in the long term.Capabilities
McDonnell believes the most important capability He says: “Liquidity and how banks will price and
that prime brokers must deliver is the capacity for distribute that liquidity will be questioned in the
clients to achieve best execution and access to deep future as historically there is a belief that banks did
and unique liquidity pools, and the credit and not value or price that liquidity correctly, and this will
network of global venues to do this. He says: impact the more aggressive high frequency traders.”
“Increasingly clients are looking to develop a real
partnership with a prime broker to optimise process The industry will have to review the risk and get to
flows and work to achieve real time STP solutions grips with the real profit economics of the FX prime
and operational efficiencies.” brokerage business to ensure they can deliver a service
that is profitable, for McDonnell says the priceSEB has built prime brokerage solutions for the full
compression, driven mainly by the algorithmic traders,range of customer types from high frequency algorithmic
and whether the current level of pricing is sustainabletraders, macro hedge funds and CTAs, institutional
will come under review. McDonnell also believes thatinvestors, as well as a core of regional and second tier
prime brokerage customers will continue to look for abanks looking to piggyback off the larger bank’s liquidity
more integrated solution and there will be a shiftand connectivity in the market. SEB is also putting the
towards providers of FX prime brokerage as part oftechnology in place to support the more synthetic swap-
multi-product offering beyond the standalone offering.based, note-based products offering clients more
alternatives when allocating to FX strategies. FXPB proving resilient
EBS Prime extends the ability to trade in the core FXLooking ahead, McDonnell says the move towards an
market to other bank and non-bank professionalelectronic market will be sustained. The recognition
traders, including hedge funds through a primeof FX as an asset class will prompt additional
brokerage relationship. It enables customers to see theinstitutional flows to FX strategies and the improved
primary spot FX and precious metals markets thataccessibility to FX derived from technology advances
might otherwise be unavailable to them, through thewill enable the continued evolution of retail
platforms. However, he believes there are some pre-screened credit of an EBS Prime bank.
|october 2009 e -FOREX 33
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