January - Prime brokerage kick-starts the year

Prime brokerage kick-starts the year

Banks were quick to pick up on one of the big growth industries of the year when they reported a boom in prime brokerage for foreign exchange in January.

The return of funds to forex trading prompted the trend, which led to a recruitment drive at Bank of America to cope with increased demand. Growth in automated prime brokerage was particularly strong, as UBS Warburg took its service online and multi-bank portal FXall added to its existing prime brokerage tools. Another portal, Currenex, announced its plans to launch an e-prime brokerage tool for the second quarter.

Online delivery proved a welcome development for those on the buy side who had experienced errors in traditional prime brokerage. One banker said some clients had reported errors in more than 60% of prime brokerage trades -- the number of errors was high, said the banker, because prime brokerage relies on banks and clients giving details to an intermediary.

Some users said they expected the cost of prime brokerage services to come down as a result of the increased competition among banks and portals. "The trade give-up usually incurs a fee, which can be large," said one London-based fund manager, but with increased competition, "these fees should be coming down."

Prime brokerage is more developed in the US, where it is guided by one currency, one time zone and one set of regulations. In Europe, different regulations, time zones and currencies across the continent have previously made it more difficult for banks to set up prime brokerage services.