Heather McLean
Heather McLean

Summer 2008 Will crisis see the dawn of a new FX Prime Brokerage industry?

Heather McLean explores ways in which the current extraordinary turbulence in global financial markets will present challenges to the FX Prime Brokerage industry.

Prime brokerage has expanded over recent years, partly because of the expansion of credit which has enabled the business to grow. Yet today, prime brokerage across all asset classes has had its legs cut away to some extent, says David Poole, COO and principal at Client Knowledge. “The current crisis in financial markets asks fundamental questions as to the FX prime brokerage business model,” he says. “The business has developed from a functional administrative service that was run by a few select investment banks, into a major revenue opportunity as the number of hedge funds grew, trading a wide variety of product,” continues Poole. “Prime brokerage was a necessary service facilitating a very profitable group of clients, a business you felt you needed to do if you wanted to deal with hedge funds. A favourable credit environment has been a key factor to the vast growth in hedge funds. FX was late to the prime brokerage party, but with increasing recent focus, especially via...continued

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