Saxo Prime will offer institutions direct market access to liquidity providers.
Saxo Bank, one of the world’s largest retail FX firms (and a member of LeapRate’s Approved List of global FX brokerages), has announced its entry into the institutional FX Prime Brokerage business, with the launch of Saxo Prime.
Saxo Bank has outsourced software from MarketFactory, specifically MarketFactory’s FX Aggregator, which provides a single Application Programming Interface (API) to connect Saxo Prime’s clients to a variety of major market-making banks and currency ECNs.
Interestingly, Saxo Bank will now be competing with Leverate (among others), in the FX Prime Brokerage business. Saxo Bank invested $12.5 million for a 25% stake in Leverate in 2011.
What exactly does a Prime Broker do? Well, a Prime Broker is, as it sounds like, a broker. Larger traders or those that want to hedge (such as retail FX brokers, looking to hedge their internal book) with a variety of liquidity sources can either open up their own accounts directly with each of these sources — or, they can open just one account with a Prime Broker (such as Saxo Prime), and piggyback off that Prime Broker’s existing connections to each of those liquidity sources.
The main benefit, beyond saving the hassle of opening multiple accounts, is capital — the customer (say, a retail FX broker) would otherwise have to post capital at each of the liquidity venues, just like a retail client needs to post capital with his/her retail FX broker before trading. Now, the FX broker just has to post capital in one place — at the Prime Broker — and can often get favorable terms from the Prime Broker (e.g., settling once or twice each day, as opposed to having to maintain a minimum capital level) that the FX broker couldn’t get from the bank or the ECN operator.