What is a Prime Brokerage?

I recently ran across the term, prime brokerage, and I had no idea what it was. I figured it was some kind of elite broker based on the word prime, kind of like the use of the word prime in prime rib. This is sort of right. However, I soon discovered that if you have more than a few hundred thousand in your account, you should learn about what a prime brokerage can offer you.

At a basic level, a prime brokerage is simply a broker that offers a group of specialized services to top clients. This service spawned from the needs of hedge funds. A prime brokerage facilitates the clearance and settlement of securities traded by active market participants. The key advantage of a prime brokerage is that it usually provides a client with ability to trade with multiple brokerage houses while maintaining a centralized master account with all of the client’s cash and securities. A prime brokerage often includes the following services:

  • Securities lending
  • Margin financing
  • Trade processing
  • Cash management
  • Reporting
  • Operational support

Other more specialized services may also include assistance with introducing hedge fund clients with hedge fund managers. It can also include office space leasing on-site for clients. There are also a wide variety of risk management and regulatory consulting services offered. Other prime brokers specialize in niche segment of the financial markets, such as IPOs. For example, Triad Securities provides comprehensive data on the global new issue market.

Prime brokerage services are provided by most of the large brokers, such as Goldman Sachs, UBS, Morgan Stanley, and Triad Securities. They offer a more customized and personalized service for their largest and most active customers. It will likely be quite some time before I ever need to consider such services personally, but it’s good to know what is out there for the top market participants.

Sponsored by Triad Securities.

4 thoughts on “What is a Prime Brokerage?

  • April 19, 2008 at 5:52 pm
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    Thanks for sharing your list of prime brokerage services, Richard.

  • May 7, 2008 at 10:17 pm
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    Thanks for the information. That’s utterly inspiring for me to be a prime brokerage operator. where can i take up this course to excel my career?

  • May 8, 2008 at 5:07 am
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    Hi George,

    My Chartered Hedge Fund Associate (CHA) program is coming out next month. The CHA will be similar to the CFA or CAIA and associated with the 5,000 person Hedge Fund roup (HFG). The CHA has designation has two testing levels. The first ensures a broad understanding of the hedge fund industry within 8 different modules. The second level specializes individuals for roles in marketing/sales, trading, analytics or portfolio management. We have also talked about creating a prime brokerage specialty option so we could at least discuss that.

    If you want to email me at Richard@RichardCWilson.com I can let you know when the CHA program is open to new participants in June.

    – Richard

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