Prime of Prime FX Market Expands04.07.2016
ParFX is launching an offering for “prime of prime” brokerages, which provide credit to FX trading institutions seeking to trade on the wholesale spot foreign exchange electronic trading platform but who cannot access the services of tier one prime banks.
Roger Rutherford, chief operating officer at ParFX, told Markets Media: “We plan to roll out a pilot of our prime of prime offering in the next few weeks. Talks with a number of prime clients have revealed their need to trade on models like ParFX.”
Following the financial crisis many banks have focused on providing capital to their largest customers. As a result ‘prime of prime’ brokers have filled the gap in providing credit for FX to smaller proprietary trading firms, hedge funds and asset managers. They leverage their balance sheet at larger prime brokers to then extend credit to their clients.
For example Denmark’s Saxo Bank, the online multi-asset trading and investment specialist, launched Saxo Prime in 2013. The foreign exchange prime brokerage gives institutional clients direct market access to FX liquidity providers and venues ranging from ECNs to tier one banks and provides credit intermediation where necessary.
This month Peter Plester, head of FX prime brokerage at Saxo Markets, the institutional division of Saxo Bank, told e-Forex magazine that new the generation of FX prime brokers are using low latency technologies and greater pre-trade controls to reduce risks.
ParFX was designed by interdealer broker Tradition and launched in 2013 with 14 banks, including Citi and JP Morgan, amongst its founding members.
Last September ParFX began trading the USD/CNH (offshore renminbi) currency pair and in January this year it added the forint after the Hungarian currency joined the CLS settlement system. Alongside the EUR/HUF pair, ParFX also added of a number of other CLS-eligible currency pairs.
“The currencies we introduce are driven by market demand and we are in regular discussion with our founders and customers about adding additional pairs,” added Rutherford. “Our focus is on expanding participation and increasing distribution as well as attracting more business from our existing clients.”
Rutherford declined to comment on specific ParFX volumes but said the firm is happy with progress. “It shows that our clients have a strong desire to trade in the fair and equal environment we provide,” he said.
Last week the Bank for International Settlements launched the 11th Triennial Central Bank Survey of Foreign Exchange and Over-The-Counter Derivatives Market Activity. The previous survey, in April 2013, showed that trading in foreign exchange spot and OTC derivatives markets was then averaging $5.3 trillion per day.
Data will be collected from more than 1,200 financial institutions in 52 countries on the outstanding notional amounts and gross market values of foreign exchange, interest rate, equity, commodity, credit and other OTC derivatives. The BIS will publish preliminary results for turnover in early September 2016, and for amounts outstanding in early November. The final, comprehensive results will be published in December 2016.
Featured image by Julien Eichinger/Dollar Photo Club
Additional volatility due to unforeseen macro events, particularly the conflict in Ukraine, were contribers.
Turnover rose across all instruments except for currency swaps.
There is a growing trend to combine on- and off-exchange business.
Richard Turner of Insight Investment sees more automation and more transparency around cost and outcomes.
Nearly all cleared activity is in non-deliverable forwards (NDFs).