FEATURE >>>
prime brokerage model will continue due to increasing
regulation and the rising cost of credit.
Multi-prime revisited
The collapse of Lehman Brothers made prime
brokerage clients seriously rethink their counterparty
credit risk exposure and as a result the shift towards
the multi-prime model in a bid to diversify credit risk
has been revisited.
Not surprisingly, the need to diversify counterparty
risk by appointing more than one prime broker has
made the FX prime brokerage even more competitive.
Edward Pla, Global Head - FICC Prime Services
at UBS, says: “Many clients have quickly become
interested in having more than one FXPB provider
in order to diversify counterparty risk. In addition
to the traditional criteria used to evaluate an FXPB,
this puts a premium on prime brokers with scalable
Gil Mandelzis front to back infrastructure and a highly organised and
“There are new participants coming from the asset efficient on-boarding process.”
management community, which had previously
shied away from FX prime brokerage.” Pla believes that the demand for multi product prime
brokerage is clearly increasing and as this trend
advances banks will offer clients an increasingly
“The FX prime brokerage market is extremely vibrant integrated service across client on-boarding, client
and growing,” he says. “There are new participants service, reporting and margin management.
coming from the asset management community,
which had previously shied away from FX prime The spotlight is very much on the management of risk
brokerage. Now asset managers recognise the exposure in prime brokerage but according to Citi’s Coyne, the
they have and the difference large balance sheets can need to consider diversification into multiple prime
make. Because of this they are opening up to the
business of FX prime brokerage and the prime-of-
prime model. As a result, from a product innovation
perspective, there is a lot happening.”
Now that all of the leading banks offer FX prime
brokerage services, Mandelzis does not believe there
will be many more new entrants into prime brokerage
however he does believe that new players will enter
into the prime-of-prime brokerage space, and that
many new clients will enter into FX prime brokerage.
“We are seeing a continuous stream of algorithmic
players from the equities and futures world that
are starting to participate in trading FX as an asset
class and we will continue to see many players from
the asset management side come into FX prime
brokerage,” he says.
He adds that another impact of the credit crisis is
that a lot of the retail aggregators are moving from Martine Bond
an agency model to a principal model, and when “We have seen a move away from the single prime
they do so, they stop being the counterparty to every broker model with most clients, large and small,
trade and become prime broker clients. He believes adding a second or even a third counterparty.”
this move away from bi-lateral relationships to the
100 | april 2010 e -FOREX
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