The diverse nature of FX prime brokerage

On a regular basis news emerges of another dealer launching a foreign exchange prime brokerage (FXPB) business, the latest being HSBC.

The conservative UK bank has often been criticised for not leveraging its strong balance sheet to extend services into FXPB, although it claimed this hadn't hampered trading flow from hedge funds (FX Week, December 5, 2005). Perhaps due to a change in leadership, combined with a more accurate pricing of risk, the stage has finally been set for the global corporate behemoth to flex into this segment of the market.

The bank is tipped to have hired Shaun Ambridge, former head of futures, prime brokerage and commodities IT at RBS in London, as part of the initiative, and is in the process of spec'ing out software. In so doing, it joins others including BNP Paribas, Morgan Stanley, Credit Suisse and SEB, as well as institutional brokers such as Newedge, to build out a presence in this business.

Certainly with its positioning in the Asia-Pacific, the bank might be able to pick up the expansive retail aggregator client segment fairly easily – it would be interesting to hear the bank's strategy. That said, it is curious that there hasn't been more of an interest to launch FXPB businesses by some of the other of the region's dominant dealers.

Reviewing the lists of the top-five banks globally from The Banker released in July, all barring HSBC have launched an FXPB business, which now looks set to be resolved. Interestingly, after Wells Fargo, which catapulted itself into sixth position for core bank strength from 23 last year, comes Mitsubishi UFJ Financial Group, which ranked five in 2008.

The banking group already has interest in external foreign exchange businesses, with stakes in FX technology companies such as Integral, via its venture capital arm Mitsubishi UFJ Capital, which is majority-owned by Bank of Tokyo Mitsubishi UFJ (BTMU).

Integral recently announced that it had signed a white-label deal with one of Japan's prominent brokers, Tokyo-based Himawari Securities. With the diverse list of companies entering FXPB, could it be that unfeasible for BTMU to launch?

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