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Prime of Primes – Aligning interests


As FX volumes continue their stratospheric rise, an increasing number of brokers and other fi nancial fi rms are exploring different methods for dealing with liquidity sourcing and distribution. Prime of Prime Brokerages or “PoPs” is an increasingly popular option for retail brokers looking to effectively manage the problems brought about by spiralling volumes, with a long term view to reaping their maximum benefi ts. But what, exactly, can be accomplished through the use of PoP, and how does the broker decide on which PoP service is most suited to their business requirements? TopFX makes the case for PoPs.


expanding FX industry. T e slowdown in growth that was predicted by some analysts in 2008, based on the economic downturn and fears of looming regulation, never materialised. Instead, propelled by the arrival of new technologies that lowered barriers to entry, the industry has seen its growth accelerate.


T


T is has led to a surge in the number of fi rms now operating as brokers and eff ectively acting as market makers, and the immediate result is more liquidity fragmentation - higher levels of overall liquidity, but more widely distributed.


With the additional complexity created by this dispersion of liquidity, even mature brokers


he FX market is continuing to attract new players keen to take a cut of the relentlessly


are now trying to establish relationships with PoPs in order to get the additional service and support not traditionally available from regular prime brokers. PoPs are becoming the fi rst choice for many retail aggregators because of their more favourable trading terms and higher degree of fl exibility than prime brokers, delivering market access, competitive pricing, and deep liquidity.


Agency Model / No retail clients


T e agency model of liquidity provision, used by PoPs such as TopFX, solidifi es a mutual commitment to success in which both parties are incentivised to carry each other forward.


TopFX CEO, Gabriel Styllas, believes this business model is critical in institutionally addressing


66 | INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013


the issue of transparency. “We’re an agency model PoP who don’t hold any proprietary positions; at the same time we don’t accept retail clients. We recognize the importance of removing all confl icts of interest between us and our clients, and of off ering a fully transparent service where our success is tied to the success of our partners. If you really want to reduce risks, then establishing a relationship with a PB market maker might not be the best way to achieve this.”


Customer Service


Seasoned brokers and well- advised newcomers will understand the value of good customer service – not only in preventing the frustrations and time delays resulting from poor customer service, but also in the signifi cant savings in time and money that can come from


Viewpoint


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