Prime brokers doing away with OTC ‘give ups’
Wednesday, February 18, 2009 : Permalink‘Give up arrangements’ are where the executing broker writes trade tickets on behalf of both counterparties to the trade – provided hedge funds with three advantages: easier post-trade operations, cross margining and credit intermediation.
“Challenged by investors to provide increasing levels of transparency, independent validation and reporting frequency, funds would also have to find the operational bandwidth and capability to efficiently manage the complexities of OTC trade processing involving multiple instruments, high volumes and multiple counterparties." Hans Hufschmid, CEO of GlobeOp Financial Services commented, "And the February 28 deadline after which major dealers will not accept novation consents by email looms.”
GlobeOp also noted that during the Lehman Brothers crisis in September 2008, hedge funds began diversifying counterparty risk by abandoning the practice of single prime broker give ups and converting to multiple direct counterparty relationships.
“If the initial signals become a trend as financial markets and the hedge fund sector restructure, out sourcing will increase in appeal as hedge funds simultaneously face increased investor demand for independent administration and robust infrastructure declining fund performance and management fees to fund or ramp up the required technology and people resources continued attractive opportunities for strategies involving OTC derivatives.”
Alex Akesson
Editor for HedgeCo.Net HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Email: alex@hedgeco.net
Tags: 25m, 5b, complexities, consents, core business, counterparties, credit risk, globeop financial services, independent validation, lehman brothers, palm-beach, prime broker, prime-brokers, profitable business, restructure, risk tolerances, trade operations
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