Prime of Primes – Aligning interests

As FX volumes continue their stratospheric rise, an increasing number of brokers and other financial firms 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 benefits. 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.

The FX market is continuing to attract new players keen to take a cut of the relentlessly expanding FX industry. The 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. This has led to a surge in the number of firms now operating as brokers and effectively 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 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 first choice for many retail aggregators because of their more favourable trading terms and higher...continued

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