Prime Brokerage OTC Derivatives
(http://PrimeBrokerageGuide.com) A recent article by Alex Akesson noted that some large prime brokerage shops are now ending any OTC give up arrangements that their hedge fund clients had previously put into place. For many hedge funds these changes are happening right now - and for many more it will probably occur before the beginning of Q3 of 2009. Here is the article excerpt mentioned above:
Hedge funds of varying sizes report being given notice by prime brokers that OTC derivative give up arrangements will end - quickly. Funds ranging in size from $25M to $2.5B are being told new derivative trades "done away" will no longer be accepted near the end of the first quarter and that give up relationships will end completely in April.
‘Give up arrangements’ are where the executing broker writes trade tickets on behalf of both counterparties to the trade – provided hedge funds with three advantages: easier post-trade operations, cross margining and credit intermediation.
“Challenged by investors to provide increasing levels of transparency, independent validation and reporting frequency, funds would also have to find the operational bandwidth and capability to efficiently manage the complexities of OTC trade processing involving multiple instruments, high volumes and multiple counterparties." Hans Hufschmid, CEO of GlobeOp Financial Services commented, "And the February 28 deadline after which major dealers will not accept novation consents by email looms.” source