Best FX prime broker and Best compression/optimisation service for FX: HSBC

With one of the largest FX networks worldwide – and strong coverage in Asia and other emerging markets – HSBC’s FX prime brokerage (FXPB) remains a strategic partner to key financial institutions

When choosing an FXPB, market participants are not just looking for a service provider to process their trades, but a strategic partner to deliver innovative solutions to support them in their unique requirements. This is the ethos upon which HSBC’s FXPB franchise was built 10 years ago, and it remains true to this day.

“I like to think of our interaction with prime brokerage clients as a symbiotic relationship where there is mutual trust, absolute clarity, transparency and stability in how we operate and how we service them,” says Vincent Bonamy, head of global intermediary services at HSBC. “One of the most important factors for clients is the stability of our risk parameters so they know what to expect from their prime broker – especially when there is a market event.”

Before a client is onboarded, the HSBC team sits down with them to fully understand what strategies they run and where the key risks lie. The dedicated FXPB risk team then determines the risk management parameters to be applied for each portfolio and customises margin models accordingly. All risk parameters are pre-agreed with clients so they understand the risks HSBC is willing to accept, reducing uncertainty and grey areas. By taking the time to understand each client’s strategy, risk profile and needs, HSBC can offer a tailored solution.

This clarity of purpose with regard to risk allowed HSBC to continue providing clients with access to credit throughout many market events and heightened periods of currency volatility, including recent developments in Turkey and Ukraine. This is where FXPB providers offer a vital role in FX markets.

“We are something of a network facilitator,” Bonamy says. “We connect our clients with a multitude of banks and other liquidity providers across many currencies. FXPB is seen as that efficiency factor in the FX industry, and it’s important to recognise that.”

With a network spanning 62 countries across six continents, FXPB clients have access to more than 50 liquidity providers in addition to HSBC’s own core liquidity pool. This allows clients to navigate uncertain market events in volatile currencies confidently, giving them the ability to manage their portfolios within a stable and transparent risk framework and with the certainty of intermediation.

HSBC’s commitment to its FXPB clients is also manifested in its structure within the bank’s core overall FX franchise.    

“We made the strategic decision at inception to structure our FXPB offering within the FX business, delivering a real differentiator to our peers, who sometimes align their FXPB with a clearing offering,” explains Bonamy. “By optimising our strengths in FX, we can provide clients with a market-leading risk management solution, access to an unparalleled number of currencies, and demonstrate a commitment to invest in innovative solutions. Our size and presence in the FX markets ensures HSBC is at the forefront of industry solutions, enabling us to proactively manage any regulatory impact to our balance sheet and ensure the FXPB business remains a strategic product for HSBC’s markets business.”

With more than $115 billion in assets under management added in 2023 from newly onboarded clients and volume growth above 50%, HSBC’s FXPB business is as dynamic as ever. Revenues in the Asia‑Pacific region (Apac) grew by more than 45% year-on-year.

From the outset, HSBC’s FXPB strategy has been to focus on a small number of large, sophisticated clients whose needs can be as individual as their portfolios. These include some of the world’s largest hedge funds, asset managers and pension funds. In Asia, the client base differs somewhat, with cross-asset hedge funds playing an outsized role compared to their European or US counterparts.

To this end, in 2023, HSBC rolled out a cross-asset margin optimisation solution that enables Asian funds to optimise their margin and collateral requirements across their equity and FX portfolios, including automated multicurrency settlement.

Conscious of the importance of such solutions for its clients in the region – and particularly multi-strategy and relative value funds – the bank is working to extend this cross-asset margin optimisation tool to futures, rates and repos.

Helping clients achieve operational alpha in this manner is part of the wider scope of FXPB services HSBC is working towards, Bonamy explains. “Providing credit and access to the market remains the primary function of FXPBs, but helping clients improve the efficiency of their FX business is equally important,” he says.

To this end, HSBC added several functions in 2023. These include a collateral netting at maturity facility that reduces funding requirements by enabling clients to use positive mark-to-market for settlement, and a dynamic financial information exchange tool to handle all FXPB trade lifecycle events, reducing operational risks.

Helping clients navigate the regulatory landscape

With the impact of regulatory initiatives such as uncleared margin rules and Basel III fresh in the minds of HSBC’s clients, the bank has invested in solutions to help them manage the risks involved.

In 2023 the bank released an FX portfolio optimiser tool that enables clients to automate the compression of trades within their portfolios, as well as the novation of FX options with a fully integrated straight-through processing capability that connects directly to clients’ risk systems.

The solution offers a flexible, targeted service, which provides control and automation around bespoke compressions, allowing clients to customise runs at the overall portfolio level, strategy level or for individual portfolio managers.

This significantly reduces the operational complexity around these processes, but also improves the confidentiality of clients’ data as portfolios are no longer sent to external third-party vendors for novation and compression as all data remains within HSBC’s segregated FXPB database. With more than $160 billion worth of trades compressed in 2023, the optimiser tool has already proved its value with the first wave of clients, with the bank planning a roll-out to all clients over the course of 2024.

HSBC was named Best FX prime broker and Best compression/optimisation service for FX at the FX Markets Asia Awards 2024.

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