Dow Jones International News 7 April 2003 15:33

New Service Seeks To Speed Forex Prime Brokerage Process

by Agnes T. Crane, Dow Jones Newswires, 201-938-2122; agnes.crane@dowjones.com

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- In an effort to cut costs and eliminate errors that can fester in the back offices of large foreign exchange brokerages, a new online service promises to streamline transactions for three banks hoping to improve the services they provide to their lucrative, or high net-worth, clients.

Deutsche Bank, AIG Trading Group and JP MorganChase have already signed up to use the Harmony web-based service designed by Traiana Inc, based in San Mateo, California.

The service, which will go live in the second half of the year, will be a virtual meeting place for brokers who place trades on behalf of third parties. Instead of faxing the details of a trade to the prime brokerage, brokers will be able to send them electronically via Harmony, cutting through the red tape that can bog down transactions processed manually, industry analysts say.

Prime brokers emerged in major financial institutions to deal with high net-worth clients such as hedge funds. They provide services from executing trades to clearing, settlement and position reporting. Hedge funds often need a prime brokerage to facilitate trades that require an enormous amount of leverage. The brokerage house, in this case, acts as a guarantor.

Since the Traiana service is web-based, processing a trade will be reduced substantially, which means savings for both the banks and their clients.

"In terms of time, it cuts the amount of time to process a deal by 90% and cost is cut by a similar amount," said Joe Buthorn, senior vice president for AIG Trading Group.

Since the emergence of prime brokerages a decade ago, back offices have been largely responsible for processing trades that make up a portion of the average $1.2 trillion daily volume in the foreign exchange market. One of the problems of processing this kind of volume manually is that errors can go undetected for days if not weeks, analysts said.

When the trades are filed and processed electronically, "these kinds of errors can be caught in seconds, minutes and certainly the same day" said Nick Solinger, vice president of marketing at Traiana.

The online service isn't restricted to Deutsche Bank, AIG Trading and JP MorganChase. Traiana hopes to attract others to the service and Solinger said two other brokerages have expressed interest already.

While the three brokerages have committed to using Harmony, the system will not be turned on for live trading until the second half of the year. Traiana has completed the first prototype, which is in the testing phase.

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New Service Seeks To Speed Forex Prime Brokerage Process