Crypto firm Ripple has emerged as a serious player in providing swap financing to leveraged exchange-traded funds (ETFs), a lucrative business long dominated by big banks. Ripple got into swap financing last year through its $1.25 billion acquisition of Hidden Road, a prime brokerage now called Ripple Prime. It is working with ETF providers and wants to expand to other investment managers, including hedge funds.
On Tuesday, Ripple Prime announced it will provide prime brokerage, clearing and financing services to hedge fund Brevan Howard. "It's definitely a growing and meaningful part of our business," said Noel Kimmel, president of Ripple Prime. Ripple and other nonbank firms are making headway because banks face stricter risk rules, and many leveraged ETF issuers are startups lacking bank relationships.
Swap fees on ETFs vary. In one example, the Tradr 2X Long SNDK Daily ETF pays a fee based on the overnight bank funding rate plus 4 percentage points to Ripple. When held longer than a single session, swap costs can drag down investor returns. "It's like a termite almost, just kind of chips away every day," said Todd Sohn, chief ETF strategist at Baird Strategas.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing