What’s on Prime Brokers’ Minds When It Comes to Risk?

TS Imagine recently sponsored a survey of prime brokers to understand their challenges and priorities when managing margin, collateral and data. Conducted by HTF Research, the survey gathered responses from 20 tier one and tier two banks and reveals interesting trends in the prime broker space with regard to how technology is (and is not yet) being used.

Prime brokers are, of course, an essential part of the hedge fund industry. Hedge funds rely on prime brokers to provide leverage, and with the capital requirements and liquidity standards in Basel III increasing the cost of providing this financing, prime brokers have increased the use of “synthetic financing” to provide hedge funds with leveraged exposure to securities at a lower cost to the bank. This approach requires prime brokers to enter into derivatives contracts with clients, raising the stakes for risk management and increasing the need and frequency of accurate margin calculations.

Managing the risks inherent in their positions, including holding sufficient margin, is absolutely essential for prime brokers. The key question is whether or not they are measuring risks and managing margin effectively and proactively. The heavy reliance on technology for these analytics means that those firms who have invested in real-time analytics platforms will gain a competitive edge over those still working off yesterday’s data. This survey sheds light on this issue and others of interest to anyone in the prime brokerage or hedge fund industries.

Among the survey’s findings:

  • The vast majority of respondents currently review client margins daily/overnight but expect to move toward real-time monitoring, especially in light of high profile losses for some prime brokers in 2021.
  • Upgrading client portals was a big focus, as this is seen as critical to staying competitive. Outsourcing middle office and IT functions (mainly to cloud based “as a service” providers) is rapidly gaining popularity.
  • While only a small percentage, some prime brokers do not have the tools to accurately assess risk, compliance and margin across asset classes, trading desks and geographies.
  • Many respondents assign a high priority to improving how they manage positions, risks, compliance and margin, which is consistent with the goal of moving toward real-time risk monitoring.
  • The number of respondents that see upgrading technology as a #1 or #2 priority is equal to the number that rated this as a low priority. We interpret this as an indication that many prime brokers are already in a good place with respect to technology, and many are “have nots” that must catch up to stay competitive.


To learn more about our risk management and margin tools for prime brokers, contact us.

This was a global survey, with a total of 20 participants, that included a range of large and mid-sized banks. The job titles of the participants were typically: COO Markets, Head of Prime Services, Head of Operations, Head of Risk Technology, Head of Collateral Management, Head of Architecture, Head of Fixed Income and Currencies.

The research was conducted primarily via an online survey, supported by telephone interviews as required.

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