Chris Chanod of PrimeOne Solutions explains why synthetic products are increasingly attractive to the buy side, and how to standardise the asset class
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What is demand like for synthetic products such as swaps from primes and hedge funds? Has it increased in recent years?
We have certainly seen an increase in demand around equity swaps, predominantly driven by hedge funds and the increase in Undertakings for Collective Investment in Transferable Securities (UCITS) fund allocations.
For emerging markets where leverage is not attainable through traditional margin financing, swaps have always been the dominant financing venue. Additionally, short exposure in a UCITS fund generally requires the use of swaps through portfolio swaps or traditional total return swap (TRS).
What new products are PrimeOne Solutions currently working on? Has there been much uptake of the recently-released platforms?
PrimeOne Solutions is currently engaged in strategic partnerships with select investment banks and institutional hedge funds to create greater efficiency in swaps processing and reconciliation across multiple counterparties. This will form the foundation for a ‘swap network’ where all counterparties can utilise the same calculation methodologies and work towards standardising a currently fragmented and inefficient marketplace.
What brought the idea about and how do you anticipate it will affect business for PrimeOne Solutions overall?
The swap network idea has been a part of our overall investment thesis here at PrimeOne Solutions from the very beginning. Assisting new entrants to the prime brokerage and swaps market by providing a cost effective, efficient and scalable technology solution, with a long-term goal of standardising the industry where possible.
This has created an additional revenue stream for PrimeOne Solutions in the institutional hedge fund community. We have worked diligently to make our product easily accessible to hedge funds at a relatively inexpensive price point.
Does it have any competition elsewhere in the industry?
SwapOne is in the unique position of being the only built-for-purpose swaps processing and reporting platform available in the marketplace. SwapOne is a sixth generation global swaps lifecycle processing engine that was lifted out of a global investment bank by PrimeOne Solutions in early 2012. The system is currently in place at a number of global banks and financial institutions, as well as a number of large institutional hedge funds.
Will market feedback play a role in its development?
This is where our strategic hedge fund and bank partnerships will continue to play an important role in the build-out of this industry-wide platform. Customisation and modifications of SwapOne are part of a collaborative process, unless otherwise requested by our partners.
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