Barclays offers OTC commodity service to funds

By Pratima Desai

LONDON (Reuters) - Barclays Capital (BARC.L: Quote, Profile, Research) is the first bank to offer to intermediate over-the-counter commodity trades that will save hedge funds money and reduce paperwork, the investment bank told Reuters.

Mark Croxon, a director at the bank said on Thursday the service comparable to that offered by clearing houses such as LCH.Clearnet is unique and that other banks looking at offering a similar service had withdrawn.

"If a hedge fund transacts deals with several parties which all go through Barclays, the advantage is you have one point of contact for operational purposes, in terms of reporting, in terms of settlement," Croxon said.

"There is an advantage to be had in terms of margin. You could transact with 5 or 6 people who will all be charging you margin ... By consolidating everything with a prime broker you automatically get the benefit of offsetting positions."

That reduces the amount of capital tied up in margins, he said. "Also it's time consuming and expensive to negotiate all those agreements to trade OTC."

The service for hedge funds is offered within the prime brokerage division of London-based Barclays Capital.

Prime brokers typically offer hedge funds settlement, custody and securities lending services and earn their money by charging a premium over money market lending rates for loans.

BARRIERS TO ENTRY