The shifting world of FX Prime Brokerage: Expert views and trends

The FX Prime Brokerage (FXPB) industry is undergoing a significant transformation, marked by the consolidation among traditional prime brokers and the emergence of non-bank prime brokers (PBs) as key players.

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This consolidation has particularly impacted smaller hedge funds and financial institutions, leading to a shift in how these entities access prime brokerage services. An Acuiti report highlighted that nearly 40% of hedge funds have reduced their FX PB partnerships in the past three years, often due to providers exiting the market. This trend reflects a broader movement towards a more selective and risk-averse stance by traditional bank PBs, driving smaller market participants towards alternative service providers.

In response to these market dynamics, the concept of “Prime of Prime” (PoP) has gained prominence, offering a solution to smaller entities excluded from traditional prime broker services. PoPs provide a more accessible route to liquidity and services, proving vital for smaller hedge funds and broker-dealers who face challenges in accessing prime services from large banks.

Alongside this, technological advancements and regulatory changes are shaping the industry. The emergence of mega-platforms and global exchanges expanding into spot FX reflects a push towards integrated, multi-asset trading solutions. This technological evolution is essential for prime brokers to adapt to changing market conditions and client needs.

Looking towards the future, the FXPB industry in 2024 shows a bullish trend, with significant growth anticipated in proprietary trading, according to another Acuiti report. However, the sector faces challenges such as rising exchange fees and impending regulatory changes, like the EU’s Digital Operational Resilience Act. These developments are shaping a dynamic future for the FX prime brokerage landscape, where adaptability and strategic client selection become paramount. The increasing involvement of non-bank PBs, technological innovations, and the consolidation of market providers indicate a significant transformation, with hedge funds and other market participants needing to navigate these changes strategically.

This feature article further expands into the evolving landscape of the FX Prime Brokerage industry and includes insightful commentary from Richard Elston of CMC Connect and Nabil Rahman of 26 Degrees Global Markets.

Evolution and challenges in FX prime brokerage

The FX Prime Brokerage (FXPB) market is experiencing significant changes, reshaping the industry and affecting various market participants. The Acuiti report mentioned before highlighted the decreased liquidity, higher costs, and increased operational risks for hedge funds, especially smaller ones with assets under management (AUM) below $1 billion​​.

The prime brokerage concept, initially focusing on equities, has expanded to include a diverse range of products, evolving significantly since its inception in the late 1970s. This evolution has been driven by various factors, including regulatory changes and market dynamics. However, the financial crisis of 2007-2008 marked a turning point, leading to a diversification of counterparty risk and a heightened focus on robust risk management practices.

In response to the tightening FX PB market, the concept of “Prime of Prime” (PoP) has emerged, primarily serving smaller market players. These PoP providers offer a more accessible route to liquidity and services, plugging the gap left by traditional prime brokers. Large broker-dealers, facing offboarding risks, are also engaging with multiple PoP providers as a strategic move.

The FX market is witnessing a transformative phase in terms of liquidity and technology. Scandals and potential regulatory oversight in the FX spot market have increased the focus on transaction cost analysis (TCA) and other measurement tools. Mega-platforms are merging trading technology with various execution methods, while global exchanges are expanding into spot FX. This technological evolution is essential for prime brokers to adapt to changing market conditions and client needs.

A key aspect of this transformation is the growing importance of strategic client selection for FX prime brokers. The failure of institutions like Credit Suisse has emphasized the need for FXPBs to judiciously assess client risk profiles and trading strategies. The shift towards quality over quantity in client relationships is becoming crucial for sustainable and profitable operations in an increasingly complex and regulated market​.

Commentary from CMC Connect and 26 Degrees

Richard Elston, Group Head of Institutional at CMC Connect, said: “Any serious market participant needs to be considering counterparty risk at every stage of the journey and that’s apparent in the Аcuiti study, which highlighted a preparedness amongst many hedge funds as to how they would manage being off-boarded by an existing Prime Broker. After all, the evolving landscape here has been well reported, it’s a fairly well-concentrated group that can facilitate the necessary market and they’re also adept at explaining the proposition well. In short, relationships being unwound aren’t in all reality going to morph into some kind of catastrophic market failure – the risk is entirely manageable.

“It was also notable that a large number of the funds interviewed who had been obliged to reduce the number of Prime Brokers they were working with have actually found the overall experience to be a positive one. In many corners of finance there’s a tendency to stick with what you know, but this report proves that a shake-up can ultimately deliver a better outcome and it’s something we see first-hand when onboarding new institutional clients, too. Often that can be a result of the comprehensive and customisable reporting solutions that remove a significant administrative burden, although one slightly more contentious issue acknowledged in the report is the struggle faced – especially by funds with smaller AUMs – to onboard with an FX-only PB,” Elston continued.

Nabil Rahman, Chief Operating Officer, 26 Degrees Global Markets, said: “The consolidation of the bank PBs is a real thing and it has been accelerating over the past few years. History tells us this contraction phase could last for decades. Clients who rely on accessing prime services need to be preparing now. The key is to ensure you have back-up capability to supplement your main prime broker. For many clients, nonbank PBs are saving the day.”

The consolidation of the FX Prime Brokerage (FXPB) industry, as highlighted by experts like Richard Elston and Nabil Rahman, is significantly reshaping the landscape of prime brokerage services. In this environment, non-bank prime brokers (PBs) are emerging as a vital solution to the challenges posed by this consolidation. Let’s delve deeper into how non-bank PBs are addressing these challenges and filling crucial gaps in the market.

Role of non-bank PBs in a consolidating FX PB market

  1. Offering Access to Smaller Market Participants

As traditional bank PBs become more selective, often catering to larger, more established clients, smaller hedge funds and financial institutions face the risk of being off-boarded or not serviced at all. Non-bank PBs step in to fill this void, providing essential services to these smaller entities. This role is increasingly crucial as the market dynamics shift towards larger players, leaving smaller firms with limited options.

  1. Agility and Customized Solutions

Non-bank PBs are typically more agile than their larger, traditional counterparts. They are often better positioned to offer customized solutions that cater to the specific needs of diverse clients. This flexibility allows them to adapt quickly to market changes and client demands, a trait that’s increasingly important in a rapidly evolving market landscape.

  1. Diversification of Risk and Services

In the face of consolidation, diversification becomes a key strategy for market participants. Non-bank PBs contribute to this by offering a range of services that may not be available through traditional bank PBs. This diversification can include access to a broader range of assets, innovative technology solutions, and more tailored risk management services.

  1. Filling the Gap in Multi-Asset Offerings

As mentioned by Richard Elston, the multi-asset approach is gaining traction. Non-bank PBs are well-placed to provide these multi-asset services, which are becoming a necessity for hedge funds looking to manage their investments more efficiently across various asset classes. By offering bundled services, non-bank PBs enable clients to streamline operations and potentially reduce costs.

  1. Facilitating Operational Efficiency

The consolidation in the market has led to a need for greater operational efficiency among hedge funds and other financial institutions. Non-bank PBs, with their often more modern and flexible infrastructure, can facilitate this efficiency through advanced technology platforms, offering better integration of services and streamlined processes.

  1. Adapting to Regulatory and Market Changes

The FX market is subject to continuous regulatory changes and market shifts. Non-bank PBs, given their size and focus, may be better positioned to quickly adapt to these changes, ensuring compliance and continuity of service for their clients.

  1. Providing a Safety Net in Market Stress

In times of market stress or instability, as pointed out by Nabil Rahman, having a backup in the form of non-bank PBs can be crucial for market participants. They offer a safety net, especially for those clients who might face service discontinuation from their primary bank PBs.


Non-bank prime brokers are playing an increasingly significant role in the FX Prime Brokerage industry, particularly in the context of the ongoing consolidation.

Their ability to provide access to a wider range of clients, coupled with their agility, customized solutions, and multi-asset offerings, positions them as key players in addressing the current and future needs of the market.

As the industry continues to evolve, the role of non-bank PBs is likely to become even more central, offering vital alternatives and supporting the diverse needs of market participants.

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