UBS AG is preparing to launch a derivatives prime brokerage service as part of its existing prime services platform. The space is of particular interest to the bank as hedge funds have become more active in the credit derivatives market. The initial launch of the service will cover credit default swaps, but the bank expects to expand the service into other areas, such as rates. The platform is expected to launch early this month.

"We are seeing demand for this, and we have had clients talking about wanting to do it," said Steve Briscoe, executive director and global head of post-trade services and prime brokerage operations. "We've been building the capability for the last six months and we feel we're coming to market with a product that is market leading in credit default swaps." The derivatives prime brokerage space is still relatively new, with mostly larger players, such as Morgan Stanley and Goldman Sachs, offering services.

The derivatives service was built as part of the bank's fixed-income prime brokerage platform rather than being created separately. "We felt it was important to build the derivatives prime brokerage capability on our main firm platform. So, we can leverage the same product management, pricing and transactional control that enable our proprietary derivatives business, but with segregation to provide privacy to the hedge fund's flow," Briscoe said.

The bank put a lot of focus on providing the right technology to support critical pieces of the service, including the transaction lifecycle, from portfolio take-on and new trades, to post-trade events such as novations, partial assignments and tear-ups. "We're also providing automated valuation and margining so that there are optimum margin calls to clients," Briscoe said. Users will also have access to consolidated reporting for positions across asset classes.