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How and why are Cantor clients using equity swaps , synthetic primes and delta one in the current environment ? Our client base tend to find that using swaps is operationally simple . Once a swap client is signed up , they can use that one agreement and get access to any market across the globe – it ' s that simplicity that drives much of the demand . Historically , it ' s been a cheaper route to market , certainly in the UK . For some of the markets in Asia , it ’ s better to leverage synthetics , rather than going through the whole regulatory set-up in complex markets , having to pay excessive charges directly to execute or having to worry about things like sourcing borrow , reporting thresholds , and the like . It feels to me that each prime broker has their own version of a synthetic product , which they roll out to their clients , but clients want the swap products to look as similar as possible at all the different providers . You might see differences in things like margin methodology , but slowly your clients will insist that for you to be taken seriously as a player in the market , you need to adopt a fairly standard set of rules and processes .
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SWAPS
In the face of changing market conditions , Cantor Fitzgerald has taken the decision to register as a swap dealer , with a view of becoming a significant player in the synthetic space . Lynden Howie , European head of equity finance at the firm , discusses the plans and how Cantor sees the swaps market evolving .
How do you see the evolution of synthetic prime in the swaps market ? There ' s so much benefit to the prime brokers , because of the balance sheet efficiency of synthetic prime , and I can ' t see that changing . In turn , the core reasons for using a synthetic product will remain in place . We ' re now seeing more of a drive towards increased transparency . That started many years ago in the UK , but it ’ s across the globe now . We ' ve certainly seen that in the US in the wake of Archegos , demanding that swap positions are disclosed . As the Swap Dealer rules have been implemented in the US , that ' s also bringing some of those margin rules in line with the uncleared margin rules . You might argue that for a larger prime broker , the change in the rules over the last couple years , especially in the US , will have minimal impact , because it seems to bring everything in line with what they ' re already doing . But smaller prime brokers have definitely needed to consider the impact and consider the increased capital requirement for trading swaps .
How has the implementation of this new regulation impacted Cantor ? We made a decision in the last 12 months that we would register as a swap dealer . Our product in the US has been focused on margin lending and stock loan and repo but we ' ve made the decision that given the size of the market in the US that we want to become a significant player in the synthetic space . Our US entity is well capitalised and we believe our US synthetic product will fit well alongside our existing prime brokerage business . We don ' t see the change in regulations as being prohibitive to us expanding in the region .
What led to that decision to register as a swap dealer and how far along the process are Cantor ? Our swap product caters for smallto-medium-sized hedge funds who aren ' t being serviced by the large prime brokers . That ' s why we exist . We also have quite a number of alternative clients and up until now , the majority of those have been outside the US . As the landscape is changing in prime brokerage , there are more and more clients who are looking for alternative providers like us . There ' s a great opportunity for us to expand and serve those clients in the US . We ' re actually working with the regulators in the US directly . The build out is essentially done ; we ' re just waiting for our regulatory approval .
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