JPMorgan made its long awaited entry into the prime brokerage business today with the launch of MasterSwap, a synthetic prime brokerage service that aims to capitalise on the acknowledged expertise of the bank in the OTC derivatives markets.
MasterSwap, an OTC derivative product documented under the industry standard ISDA architecture, aims to automate current equity swap products. The bank claims it offers the functionality and many of the services provided by traditional prime brokerage activity.
“It is becoming increasingly clear that the hedge fund community is looking to diversify its existing sources of financing away from traditional service providers. In addition, there is a growing recognition of the need to improve the operational simplicity of using derivative products,” says Neil Taylor, head of MasterSwap in London. “Therefore, JPMorgan has leveraged its strong equity derivative infrastructure to develop a synthetic derivative product offering with broad appeal to its customer base.”
MasterSwap offers its users what Morgan calls “operational simplicity” by removing the need to maintain a large back office to manage and carry out the administrative functions associated with traditional equity and equity derivative operations. MasterSwap will include fixed income products as well as equities and convertible bonds, plus risk management techniques and margin relief on certain credit derivative products.
The bank says cross business co-operation with JPMorgan Investor Services, the custody arm of the bank, will be essential to the success of the product – especially through its securities lending capabilities.
“With the recent launch of the Structured Portfolio Trading product, JPMorgan is completing its range of execution services for the benefit of investor clients,” says Christian Dalban, global co-head of Equity Derivatives at JPMorgan. “MasterSwap complements such execution services with a high volume global equity financing platform, leveraging many of the synergies resulting from the merger of JPMorgan and Chase.”