Managing Complex Data Sets: Real-time solutions for mini-prime brokers

Following the massive expansion of Prime Services provided by Tier 1 Investment banks to the hedge fund community in the noughties - now a huge industry - the Prime Services market has continued to evolve over the last couple of years. New, smaller hedge funds and high-net-worth individual investors have driven the creation of a new segment for more agile, tailored and efficient prime services - variously described as ‘Mini-Prime’, ‘Boutique Prime’ or ‘Prime of Prime’. These operators act as ‘concentrators’ between their client bases and the traditional large Tier 1 Prime Brokers and their asset servicing operations. 

Mini-Prime customers demand the same one stop shop for global pan-asset trading and post-trade services, with attractive funding rates on margin. Mini-Primes operating at lower fee and margin levels cannot afford the large headcount and expensive in-house developed IT platforms of the larger houses, yet their customers are equally diverse in their portfolio investment strategies and requirements for market access. At the same time, Mini-Primes have to cope with differing client credit profiles and higher turnover among their customer bases which makes life more interesting.  

Prime Services has always presented operational and IT challenges, being inherently multi-asset type, global, and needing to pull in complex data sets for trading, risk controls, reporting and operations. Cue a drive towards more a Fintech approach to deliver rapid, responsive and cost-effective IT solutions.  

The smarter Mini-Primes are using new technology to turbocharge their operational efficiency, upgrade client service delivery, and break free from legacy system shackles.

Innovation

There are many examples where new technology solutions can achieve operation efficiencies and boost client service, including the following:  

• Tailoring margin and margin financing models per customer, with cross margining;

• Upgrading all the key calculations within the Mini-Prime operation (positions, cash, margin, financing) to real time in response to clients’ intraday trading activity and market price changes;

• Proving a real-time client portal to customers, so they can view and manage their positions, anticipate margin calls, and become self service for data enquiry and parameter changes;

• Modelling the margin and fee requirements across multiple underlying Prime Brokers in order to choose the best combination of Prime houses to use;

• Automating the reconciliation with underlying Prime Brokers – not only for positions and cash, but also line-by-line on margin requirements;

• Centralisation and publication to clients of the complete universe of investable securities on offer;

• Achieving linkage between real-time margin position to amend trading system risk limits for effective risk management;

• Automating the entire suite of client reporting with the ability to refresh intraday;

• Maximising the efficiency of middle office operations.

One such tool recently launched by genesis is its Real-time Portfolio Margin (RPM) software, specifically developed for Mini-Prime brokers needing to cover a range of assets including equities, derivatives and FX. Mini-Primes can not only reconcile against prime brokerage margin calls, but they can also easily plug into the multiple providers used by their clients.

These flexible solutions were built using a microservices based technology framework. Designed specifically for the world of capital markets, the framework enables fast and agile software development by breaking down the problem into small components of functionality, while ensuring the data used is consistent in real time.

Optimising from the centre

In the fast-moving and complex world of managing trades between prime brokers and their clients, Mini-Primes need to be focussed on optimising returns from cash, collateral management and securities finance operations. The reduction of borrowing rates, using excess cash for higher yields and disputing margin calls, all help towards maintaining a bottom line. In stark contrast to legacy systems that require whole platforms to be re-engineered, the implementation of solutions developed via micro-services technology allows Mini-Primes to service their clients and manage their prime broker relationships on a much more efficient basis.