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Well placed to grow prime brokerage offering under AIFMD

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Today’s evolving regulatory landscape is playing to the strengths of ABN AMRO Clearing, certainly with respect to EMIR and AIFMD. Over the last 35 years, ABN AMRO Clearing has built a nexus to global market infrastructures to provide execution services and post-trading facilities across most markets and products. 

“We saw EMIR as an opportunity to expand our capacity. We are one of the largest clearers in the world and we’ve used this capacity to extend our clearing expertise into OTC derivatives such as IRS. It’s an opportunity for us to step in, demonstrate that we are a leading clearer, and expand our range of products,” comments Gildas Le Treut (pictured), Global Head of Prime Services at ABN AMRO Clearing. 

With respect to AIFMD, the power has shifted from the primes to the custodian banks who are liable for the restitution of an AIF’s assets should anything go awry; this applies to onshore AIFs as opposed to offshore AIFs, who are able to avail of a ‘Depo Lite’ solution with the custodian. 

“With our DNA in post-trading, and as a custodian, we understand what is needed in respect to segregation of assets. We’ve found that in discussions with custodian banks looking for a low risk prime broker for their clients, we are very much on their short list. That’s when we realised we have an important role to play in this game,” says Le Treut.

Indeed, how a prime broker is organised will become much more important under AIFMD where a fund’s assets will need to be segregated from a bank’s own assets. 

“We are a global custodian and sub-custodian and a direct member on a number of central depositaries so we have full capacity to go into flexible account segregation and account naming on behalf of the depositary bank. 

“Compared to other prime brokers, we are focused on fewer execution and post-trades with this quality of asset segregation and that is definitely an interest in the market. Not all depositaries are banks and that means they will automatically have to lean on their clients’ prime brokers. The advantage of ABN AMRO Clearing having balance sheet behind it, along with this tradition of asset protection, is a great asset in today’s climate,” adds Geert Vanderbeke, Executive Director of ABN AMRO Clearing. 

Currently, ABN AMRO Clearing is supporting both synthetic and cash products but is focusing more on cash prime brokerage. What is interesting to note is that AIFMD is pushing depositary banks to request more synthetic products because there is no liability for restitution when using swaps.

Unfortunately, says Le Treut, when one extends this to Basel III and CRD IV, synthetics will be extremely expensive. He notes, “We are at a crossroads now with AIFMD and Basel III where primes will either have to move very fast into synthetics and use their balance sheet more selectively, ensuring they have a completely hedged book, or they will move back to become pure cash primes, which was the case pre-2008. I think we might see a return to that old model but with clear rules on segregation.

“That will benefit us, where we can demonstrate full transparency on asset segregation and margin protection. The days of Lehman where nobody knew where the assets were are over now that we have AIFMD and Basel III.” 

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