Finance and financial system

SAUDI ARABIA: INVESTMENT INCENTIVES
The Saudi Arabian General Investment Authority and the Supreme Economic Council agreed on July 2 to introduce new measures to attract foreign direct investment. The changes aim to speed up the process of gaining invest­ment permission and trade registration, and cut the kingdom's dependence on expatriate labour. They include: exemptions on customs tariffs; more efficient judicial procedures for the resolution of trade disputes; stronger guaran­tees for investors; and special incentives for locals and foreigners to invest in less-developed regions. Foreign investors will now also be able to gain entry visas through Saudi embassies without having a letter of invitation.
UNDER PRESSURE
The allure of providing prime brokerage ser­vices to hedge funds is putting pressure on the three dominant brokers in the industry, says Standard & Poor's.
The ratings agency predicts two trends that could erode the profits from prime brokerage at the three largest US prime brokers, Morgan Stanley, Goldman Sachs and Bear Stearns.
The first is competition from investment and commercial banking groups attracted to prime brokerage for hedge funds because of the earnings potential. "Wide margins and growth in volumes in prime brokerage have attracted new entrants who compete on price and in the conditions of services, including collateral requirements," says Standard & Poor's report, Hedge funds and their counterparties - catching the big one, UBS and Citigroup, for example, are reported to have been pouring money into prime broker­age services such as securities lending and trade execution.
A second trend that might erode the profits to which the large three prime brokers have become accustomed is the internalization of services by some of the largest hedge funds, says the report. A few large hedge funds are bypassing brokers and trading directly with other investors, while others have International Swaps and Derivatives Association agreements with dozens of counterparties. Hedge funds are also increas­ingly running their own repo desks and secu­rities-lending operations, conducting their own research, and relying less on sell-side analysts. The report says: “In some ways, large hedge funds are competing with the brokerage industry”.