New Rules For U.K. Primes

Apr 1 2010 | 9:12am ET

British prime brokerages face a raft of new rules on how they use client money, as U.K. regulators seek to avoid a repeat of the Lehman Brothers disaster.

Under proposals offered by the Financial Services Authority, prime brokers would have to offer daily reports to their hedge fund clients, detailing how their assets are being held and if any money has been reinvested. While firms will still be permitted to rehypothecate client assets, using them as loan collateral, limits on the practice would have to be set out in contracts with hedge funds.

Rehypothecation has been the source of much trouble in sorting out the assets of Lehman’s London-based unit since the investment bank went under in 2008. Clients, including many hedge funds, have filed more than $800 billion in claims; many prime brokerage assets have been frozen since Lehman’s collapse.

The FSA’s proposal comes in the wake of bitter criticism of prime brokerage rules by the British court overseeing the Lehman bankruptcy. Existing rules on segregating assets are “patently inconsistent and flawed in certain respects,” the court said last year.

The proposals would limit prime brokerages to investing no more than 20% of any client’s bank deposits. Firms would also have to give an executive the responsibility of ensuring that client assets are properly segregated.

“We are keen to learn the lessons of the recent crisis,” Paul Sharma of the FSA said. “The paper goes far wider than Lehman—it sets out ways to protect clients and consider market stability in the event of a firm’s insolvency.”

The regulator is set to issue final rules governing prime brokerages by the third quarter.


In Depth

Q&A: Executive Recruiter Talks Hedge Fund Closures, Hiring Trends

Dec 19 2014 | 6:58am ET

This year, hedge funds have been closing at a rate not seen since the financial...

Lifestyle

Cooper-Hohn Won't Contest Divorce Settlement

Dec 18 2014 | 9:51am ET

The ex-wife of hedge fund billionaire Christopher Hohn will not contest a divorce...

Guest Contributor

Alternative Investment Funds Face A Communications Imperative

Dec 19 2014 | 6:10am ET

A handful of the top alternative investment firms on both sides of the Atlantic...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.