The digital tools accelerating prime brokerage growth

17 July 2023

The integration of digital tools and technologies is transforming the prime brokerage landscape, revolutionising processes and mitigating risks. For example, the automation of margin calls, trade confirmations and settlement have reduced manual errors and improved operational efficiency. Blockchain and DLT are also reshaping the way firms operate.

However contract analysis has arguably lacked investment when compared to other areas of the prime brokerage ecosystem. At present, there continues to be an over reliance on manual processes for the collection of counterparty contract data, while easily removed inefficiencies persist in client onboarding and management. 

Prime brokerage agreements involve a high degree of counterparty risk, therefore a lack of data availability is also impacting decision making and slowing reaction times to market events. And this is critical at a time when regulators are demanding firms invest in improved risk management.

Three key abilities that can drive prime brokerage growth

Perhaps shortfalls in investments are unsurprising when you consider that the cost of providing prime brokerage services – including technology infrastructure, regulatory compliance, and talent acquisition – can be substantial. 

If firms want to accelerate growth, they need to find new ways to optimise their operational efficiency while delivering value to clients. A software solution that is holistic in its approach and caters to prime brokerage complexities will help firms achieve this. 

Business should be aware, when reviewing prospective contract analysis software providers, of the key abilities that technology solutions in this space really ought to offer:  

• The first is to automate the collection of extended data sets from Prime Brokerage agreements and improve data quality.

  Any contract solution must be able to handle the bespoke nature of prime brokerage relationships and contract structures. This will enable cost reduction and improved data quality to drive additional value-add services off the back of the data sets collected.

• The second is the ability to rapidly search for and access contextualised data on critical clauses, such as termination events, NAV decline or notification periods, that, most importantly, you can rely on to take decisive action.

  It shouldn’t take more than a few seconds to see all of the events likely to lead to a counterparty unilaterally ending an agreement. This way you can react quicker and more effectively in the advent of a legal or market event.

• The third is to analyse legacy legal clauses for risk impact. Identifying what we sometimes refer to as ‘cockroach clauses’.

  The ability to look back on existing clauses, will enable firms to optimise future contract negotiations, secure favourable terms and see improvement in the pace of onboarding new business. This will enhance ongoing risk and relationship management for the agreements that are already live. We recently wrote about this in more depth here.

On the face of it, these abilities sound straightforward. But despite the advent of cloud-based SaaS solutions in prime brokerage, many firms still struggle to quickly access accurate data, and this is often down to the fact software solutions are often not able to provide solutions to all three areas mentioned above. 

How to speed up processes and improve risk visibility

Likezero is helping prime brokers to acquire the key abilities by providing fast, contextualised counterparty visibility. And with abilities come outcomes.