CFH Clearing Head of Prime Brokerage Nick Mortimer on increasing liquidity pools for best execution

 

Refinement and depth of liquidity is paramount among prime brokerages and institutional providers this year. Nine months have passed since the Swiss National Bank removed the peg on the EURCHF pair, sending the markets into unprecedented volatility and causing the whole range of firms from retail companies to prime brokerages to risk management specialists and vendors to take a close look at the execution model.

The move toward bi-lateral liquidity did not happen, and although exchange-traded FX has gained tremendous ground this year, electronic trading did not migrate en masse to major venues, therefore OTC liquidity providers have been constantly honing their efficiency, a recent example being CFH Clearing’s addition of BNP Paribas to its existing range of providers.

FinanceFeeds spoke today to Nick Mortimer, Head of Prime Brokerage and Clearing Solutions a CFH Clearing with regard to this addition to the firm’s existing pool of Tier 1 institutions.

CFH Clearing has expanded its liquidity provision recently. By adding BNP Paribas, what pools of liquidity is CFH looking to tap into, and what demand from commercial customers led to this?

CFH Clearing has produced a pool of liquidity that we can offer out to the right type of customer on a Prime of Prime basis. Demand has come from customers who, since 15 January, have lost their Prime Broker and are now looking for a Prime of Prime relationship. Prime Brokers have increased their thresholds to on-board new customers and this has resulted in increased demand for CFH Clearing’s services.

What should retail FX firms consider when selecting a liquidity aggregator, and how does adding several multi-bank liquidity providers give an advantage over other trading entities?

Spreads, margins and the stability of the firm are the key areas for retail FX firms to consider. Every liquidity aggregator has its own relationship with Liquidity Providers and the strength of that relationship will determine the pricing and opportunities with them. FX firms should looking for a provider who can customise feeds to match specific requirements.

When selecting an FX Prime Brokerage, what aspects are the most important? Locality, proximity to major servers in important locations for FX providers such as Equinix LD4 in London or TY3 in Japan to ensure good execution or the actual deal that the FX prime broker gives the liquidity aggregator?

We are very rigorous in our process and consider a number of criteria such as the FX Prime Broker’s credit rating, speed of on-boarding, technological capabilities, robust systems, competitive terms and proven track record in the FX industry.

By increasing its Prime Brokerage scope, CFH is clearly sticking to this model as opposed to looking toward providing exchange based or bi-lateral liquidity. What is the advantage of the aggregated model with prime brokerages supplying liquidity compared to looking at exchange traded FX or bi-lateral execution model?

We have a great deal of experience and a proven track record in this market, with a model that works well. Our model provides institutional clients with the opportunity to customise feeds to best suit their needs and profitability.