Prime brokerage has become one of the fastest growing products in the global foreign exchange markets. From its low-key inception in the early nineties, as semi-formalised give-up arrangements between a handful of financial institutions, it has become a banking service in its own right, provided by banks as a core part of their foreign exchange offering. Today, some 125 organisations* rely on prime brokers to process transactions and manage credit relationships.

Demand fuelled by FXall technology

The introduction of technology to fully automate the give-up process in real-time, providing a complete audit trail and facilitating compliance, has helped accelerate adoption of FX prime brokerage by banks and customers. The market leader in multibank FX trading and confirmation, FXall has led the way by introducing an industry solution for prime brokerage messaging enabling participants to fully automate the prime brokerage process with counterparties through a single point of access.

Another factor driving the upsurge in FX prime brokerage has been the entrance of investment funds into the FX markets. Over the last three years, increased attention on FX as an asset class has meant that more and more investors, both large and small, are trading in the currency markets. This renewed investor interest in FX could not have come at a better time as new technologies enabled savvy market participants to receive fast automated pricing from an increasing number of liquidity providers. Banks were quick to respond to this new popularity by enhancing their FX prime brokerage services to make it easier and more convenient for investment funds to enter the foreign exchange markets.

Meeting the needs of investment funds

For investment funds, there are many benefits to be gained from transacting through a prime broker. By establishing credit relationships with just one or two brokers, they gain access to a large number of trading counterparties. They also benefit from the ease of netting of end of day trading positions across counterparties, consolidation of margin positions and simplification of back-office and accounting processes that significantly reduce costs and risks. By outsourcing transaction processing, FX prime brokerage removes administrative headaches, enabling customers to concentrate on their core competencies. In addition, the prime broker provides an independent audit trail and reports end of day positions directly to fund administrators.