Loading the player...

What is a 'Prime Brokerage'

A prime brokerage is a special group of services that many brokerages give to special clients. The services provided under prime brokering include securities lending, leveraged trade executions and cash management, among other things. Prime brokerage services are provided by most of the large brokers, such as Goldman Sachs, Paine Webber and Morgan Stanley.

BREAKING DOWN 'Prime Brokerage'

Hedge funds started the prime brokerage option. Hedge funds place large trades and need special attention from brokerages.

Prime brokerages, at times referred to as prime brokers, are generally larger financial institutions that have dealings with other large institutions and hedge funds. Though prime brokerages offer a large variety of services, a client is not required to take part in all of them and can have services performed by other institutions as it sees fit.

Prime Brokerage Services

A prime brokerage offers a set of services to qualifying clients. The assigned broker, or brokers, may provide settlement agent services along with financing for leverage. Custody of assets may be offered, as well as daily preparations of account statements. Prime brokers offer a level of resources many institutions may not be able to have in house. In essence, a prime brokerage service gives large institutions a mechanism allowing them to outsource many of their investment activities and shift focus onto investment goals and strategy.

Concierge-style services may also be offered. These can include risk management services, capital introduction, securities financing and cash financing. Some services even go as far as to offer the opportunity to sublease office space and provide access to other facility-based benefits. Just as with more traditional offerings, participation in any of the concierge services is optional.

In the cases of securities lending, collateral is often required by the prime brokerage. This allows it to minimize the risk it experiences as well as give it quicker access to funds if they are needed.

Qualifying Clients

The majority of prime brokerage clients are made of large-scale investors and institutions. Money managers and hedge funds often meet the qualifications, as well as arbitrageurs and a variety of other professional investors. In the case of hedge funds, prime brokerage services are often considered significant in determining a fund's success.

Two common types of clients include pension funds, a form of institutional investor, and commercial banks. These forms of investors often deal with a large amount of cash for investment but do not have the internal resources necessary to manage the investments on their own.

RELATED TERMS
  1. Brokerage Company

    A business whose main responsibility is to be an intermediary ...
  2. Brokerage Account

    An arrangement between an investor and a licensed brokerage firm ...
  3. Prime Cost

    A business's expenses for the materials and labor it uses in ...
  4. Wall Street Journal Prime Rate

    An interest rate that large banks in the United States charge ...
  5. Commission

    A service charge assessed by a broker or investment advisor in ...
  6. Block House

    A brokerage firm with the primary focus of locating potential ...
Related Articles
  1. Investing

    What is a Prime Brokerage?

    A prime brokerage offers special services to certain clients.
  2. Investing

    What's a Brokerage Account?

    A brokerage account is a contractual arrangement between an investor and a licensed securities broker or brokerage.
  3. Financial Advisor

    Varieties Of Brokers And How To Pick The Best One

    Figuring out what kind of broker to use can be a daunting task. The key is figuring out just how much help you need.
  4. Trading

    10 Tips For Choosing An Online Broker

    This important investment decision happens before you pick your first stock. Find out how to get it right.
  5. Financial Advisor

    Understanding Brokerage Fees

    Agents charge brokerage fees for facilitating transactions between buyers and sellers.
  6. Investing

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  7. Investing

    Opening Your First Brokerage Account

    Learn what steps you should take before you open your first brokerage account.
  8. Investing

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  9. Retirement

    The Rise of 401(k) Brokerage Accounts

    Many 401(k) plans now allow participants to trade stocks and bonds by offering brokerage accounts inside the tax-deferred plan. Good idea or too risky?
RELATED FAQS
  1. Why is it important for a business to understand prime costs?

    Learn what constitutes prime costs for businesses, and discover why companies need to understand prime costs in business ... Read Answer >>
  2. What should ordinary borrowers know about the prime rate?

    Learn more about how prime rates are used in consumer lending and how consumers may obtain better interest rates at or near ... Read Answer >>
  3. What is prime cost in managerial accounting?

    Learn about prime costs in managerial accounting such as direct material cost, labor and wages cost, and other direct costs ... Read Answer >>
  4. How does the Wall Street Journal prime rate forecast work?

    Learn about the Wall Street Journal's prime interest rate methodology. Discover trailing financial indicators, and engage ... Read Answer >>
  5. How can I calculate prime costs?

    Learn about the prime cost formula and how to determine which production expenses are included in the calculation of the ... Read Answer >>
Hot Definitions
  1. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  2. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  3. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  5. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center