Forex Magnates has learned that Commerzbank is winding down its Foreign Exchange Prime Brokerage (FXPB) business. The changes occur as the bank is reallocating resources in its Market Services business which is composed of the firm’s post-trade solutions including clearing, custody, collateral solutions and trade repository services. Overall, Commerzbank is hoping that the elimination of FXPB will be a case of “addition by subtraction” as they optimize their offerings to better fit the needs of clients.
According to sources at Commerzbank, FXPB is a small part of the overall Market Services business, with only minimal changes expected to take place both internally and for customers. Nonetheless, the FXPB exit marks the latest example of a European bank shutting down their prime brokerage activity or reducing it. Earlier in the year, Rabobank notified customers that it would no longer offer FXPB services, while SEB Bank confirmed to Forex Magnates that they were halting the onboarding of new clients.
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The FXPB contraction in the industry is taking place at a time when credit needs have actually been rising, which has caused a gap of suitable services for asset managers, hedge funds and brokers who don’t qualify for accounts at major banks such as UBS and Citibank. Partially, the opening in the market is being filled by Prime of Primes (PoPs) who have moved aggressively to offer credit and liquidity to buy-side customers. PoPs resell credit that is available to them through their relationships with major banks.
The benefits of PoPs are quicker account onboarding times as well as lower minimum deposit needs. However, costs of trading with PoPs tend to be higher than accounts with a true FXPB. Also, some of the newer firms that have set up “Prime” units are in fact limited in the diversification of banks and venues they can offer customers credit to, and more closely resemble margin trading accounts with ECN liquidity.