Filling the banking gap with a new wave of FX prime broker and credit intermediary

Nicholas Pratt examines how a new breed of FX credit intermediaries and prime of prime brokers are able to fill the void left by banks who are responding to the impact of the tightened credit environment by reconsidering their engagement with hedge funds, prop trading firms and retail aggregators, making it harder for these firms to access interbank markets

First Published: e-Forex Magazine 57 / FX Brokerage Operations / July, 2014

The legacy of the 2008 financial crisis lingers on. The recent decision by the European Central Bank to lower interest rates to an all-time low of 0.15%, as well as imposing a 0.10% charge for depositing funds overnight at the Central Bank, was triggered by the lack of credit available to small businesses and homeowners. The lack of lending is not just in the so-called ‘real economy’.  In the capital markets, investment banks are rethinking their engagement with certain counterparties, setting new thresholds for hedge funds, prop trading firms, retail aggregators and other entities. The impact of this credit crunch is especially evident in the FX market where lines of credit are so vital to non-bank participants, making it much harder for these buy-side firms to access the interbank markets.Joe Conlan“For clients to aggregate their own liquidity with an internal or external technology firms is a three to six month process, while implementing a prime broker’s liquidity offering is a couple...continued

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