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Scotiabank Expanding Hedge Fund Derivatives Services

Date: Friday, October 12, 2012
Author: Sean B. Pasternak and Matthew Leising, Bloomberg

Bank of Nova Scotia, Canada’s third- largest bank, will offer more products to hedge funds including derivatives trading as it expands prime services to compete inside and outside its home country.

Scotiabank plans to provide clearing of listed derivatives for its prime brokerage clients by the end of 2013 or early 2014, said John Stracquadanio, head of prime services for Scotiabank Global Banking and Markets.

Stracquadanio’s unit has offered securities lending, prime brokerage and other hedge-fund services primarily in Canada. After expanding its U.S. platform in July using technology acquired from Tokyo’s Daiwa Securities Group Inc. (8601), the bank plans to offer services to hedge funds in all of the countries where it does business, he said.

“Our goal is to make sure that when we’re speaking to a manager that has a global portfolio, we can finance, lend securities and ultimately execute globally to match the trading strategy that the hedge fund has,” Stracquadanio said in a telephone interview from New York.

Before the 2008 financial crisis, firms including Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) dominated the prime brokerage business, which Stracquadanio estimates has a fee pool of $13 billion to $20 billion.

“After the financial crisis, the bank realized that it could potentially compete in a very competitive market outside of Canada,” said Stracquadanio, 47. “The crisis kind of loosened the hold some of the larger players had on the market.”

Less Competition

Competition has been thinned by the collapse of some futures brokerages. Customers at MF Global Holdings Ltd. (MFGLQ), which was led by former New Jersey Governor Jon S. Corzine, are still missing $1.6 billion after the firm’s wrong-way bets on European sovereign debt, credit-ratings downgrades and the worst quarterly loss in the company’s history led to bankruptcy last October.

Futures account holders at Peregrine Financial Group Inc. will receive a $123 million interim payout after more than $200 in segregated client money was left in limbo. Founder and Chief Executive Officer Russell Wasendorf Sr. was arrested July 13 after a suicide attempt and a signed confession that he defrauded customers for 20 years.

Stracquadanio declined to name hedge-fund clients or say how many customers Scotiabank has.

“I don’t envision you seeing us as a top-three prime services provider,” Stracquadanio said. “We’ll be much more of a unique provider.”

Scotiabank’s Global Banking and Markets unit, formerly known as Scotia Capital, had profit of C$398 million ($406 million) in the fiscal third quarter, representing about one- fifth of the bank’s profit.

To contact the reporters on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net