The prime brokerage business is broadening out, creating career opportunities as smaller U.S. brokers enter the space.
The sector is groping toward a new structure more than a year after the collapse of Lehman Brothers led to months in limbo for billions in client assets Lehman had administered. Counterparty risk remains a major concern, which makes for a natural affinity between the largest fund firms and the largest and financially strongest brokers - JPMorgan, Goldman Sachs, Credit Suisse, Deutsche Bank and Morgan Stanley.
With the surviving big banks less interested in serving small and mid-sized hedge funds, mid-tier brokers are moving into the breach. Reuters reports the new prime brokerage players include FBR Capital Markets and TradeStation Group. In addition, Interactive Brokers and Knight Capital are said to be gearing up.
They're also targeting business from big funds who don't want to put all their eggs in one basket. "One thing that we've all learned is that it's best to have multiple prime brokerage providers, and that brings pretty big opportunity for smaller players to move up the food chain," analyst Matthew Snowling of FBR Capital Markets told Reuters.
TradeStation launched its Prime Services division in September. It aims to serve start-up to mid-sized hedge funds, registered investment advisers, professional traders and asset managers. Reuters says the firm will offer execution platforms, clearance and settlement of trades, risk management, portfolio reporting and commission-sharing arrangements to its clients.
"Over the last 12 to 18 months, it has become increasingly difficult for these types of firms to find providers that meet their needs," Salomon Sredni, TradeStation's chief executive, said in October.
The real boost to smaller prime brokers' business - and hiring - may occur when new hedge funds start launching again as markets recover from the crisis.
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