More FX Banks Increase Prime Brokerage Terms, Hurting Smaller Clients

All sectors of the currency trading industry are still learning how to cope with the new environment of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term and Risk Management Risk Management One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, One of the most common terms utilized by brokers, risk management refers to the practice of identifying potential risks in advance. Most commonly, this also involves the analysis of risk and the undertaking of precautionary steps to both mitigate and prevent for such risk.Such efforts are essential for brokers and venues in the finance industry, given the potential for fallout in the face of unforeseen events or crises. Given a more tightly regulated environment across nearly every asset class, Read this Term ushered in by the CHF shock on January 15, infamously known as Black Thursday.

In the FX prime brokerage (PB) space this has meant that brokers face harsher requirements and costs. PBs have reportedly restricted leverage for some larger clients and outright terminated their cooperation with smaller ones. Citi, a prominent player in the FX PB space, is said to have increased transaction fees by as much as 25% on the back of revised risk measures. Citi is also considered to have raised its minimum capital requirement to $25 million, out of reach for smaller brokers and local banks.

The FX PB market has already been evolving for the past few years, with some large banks either scaling back their prime offerings or simply pulling out altogether. This has in turn led to the rise of Prime of Prime services but the tightening conditions have now reached PoPs too, as the ripple effect of Black Thursday expands.

According to clients’ reports we have recently received, long established PB ABN AMRO now reportedly requires that users of its services will stand by a measure of $5 million in minimum capital requirement, as well as pay at least a total of $200,000 in minimum fees a year. The Netherlands-based ABN AMRO has not commented on these reports as of yet.

Meanwhile, more recent entrants to the Prime Brokerage space are taking advantage of the harshening environment to further establish their client base. "At Saxo Bank we had no such change of the terms of client onboarding requirements and we are happy to service these mid-tier clients," Peter Plester, Head of FX Prime Brokerage at Saxo Bank, commented to Finance Magnates.