"Prime brokers are certainly more open to the idea of looking to third party vendors," says Martin Campbell, managing director, Prime Brokerage, SunGard.
"In the past, they would say that they would do all the development in-house but now they are questioning the benefit of investing time and resources in areas where there is little added value."
Typically the back office is the kind of destination where there is little client facing technology and prime brokers are looking for external solutions.Campbell
says that much of this work involves both the re-engineering of legacy systems and also an element of starting from scratch.The idea of prime brokerage being a simple way for bulge bracket firms to make more money from securities lending and financing is long gone.It is now about trying to integrate a whole range of services encompassing risk analytics, client reporting and performance measurement."When these firms started out in the prime brokerage market they did not consider the scale aspect in their systems development," says Campbell
Scale has become an important issue in the growth of the FX prime brokerage market, which for many prime brokers has been a relatively new addition to their service.
"Unless they are able to do that, a prime broker will find it very hard to do the margining for cross asset funds," says Campbell
In many ways the primary challenge facing prime brokers is simply a case of STP
- except that STP
is no longer simple."In the past STP
was a fairly linear thing," says Campbell
."Now, in the market in general and certainly in prime brokerage, STP
is far more sophisticated and is more like a three dimensional web than a two dimensional chain.It is not just about providing seamless connectivity in the trading process, it is also about trying to include risk, finance, reporting and administration into their infrastructure and then trying to streamline these processes.And doing all of this for multiple assets within a single portfolio is very hard."
The key point, says Campbell
, is that prime brokers are a long way from where they want to be in terms of STP rates.