Prime Brokerage

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 Account

    An arrangement between an investor and a licensed brokerage firm ...
  2. Wall Street Journal Prime Rate

    An interest rate that large banks in the United States charge ...
  3. Prime Bank

    Term used to describe the top 50 banks (or thereabouts) in the ...
  4. Block House

    A brokerage firm with the primary focus of locating potential ...
  5. Asset Management

    1. The management of a client's investments by a financial services ...
  6. Brokerage Fee

    A fee charged by an agent, or agent's company to facilitate transactions ...
Related Articles
  1. 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.
  2. 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.
  3. ETFs & Mutual Funds

    Bank Failure: Will Your Assets Be Protected?

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

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  5. Financial Advisor

    Full-Service Brokerage Or DIY?

    Determine what you are getting for your fees and commissions and how to get your money's worth.
  6. Investing

    Brokers and Online Trading: Conclusion

    One of the most important investment decisions you will make has nothing to do with which stock, bond or mutual fund you buy. We're talking about selecting a broker. Hopefully the information ...
  7. Trading

    How Brokerage Fees Work

    What you need to know about fees when choosing between a full service and discount broker.
  8. Managing Wealth

    Top 10 Brokerage Firms For Day Trading

    Day traders have different needs from long-term investors. Investopedia rates the top 10 brokerage firms for day traders.
  9. Managing Wealth

    A Guide To Hedge Fund Startup Services

    We review some options, service providers and processes you can follow while starting up your hedge fund.
  10. Trading

    The Most Expensive Brokerage Accounts For Traders

    A peek into the brokers whose brokerage charges are higher than average in the stock market world.
RELATED FAQS
  1. How can an investor profit from the increase in popularity of discount brokerages?

    Find out how investors benefit when brokerages compete with each other, and how discount brokerages are changing the market ... Read Answer >>
  2. How high has the prime rate ever gotten?

    Discover the highest value of the prime rate in United States' history and understand the assumptions and calculations that ... 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. Why are most brokerage firms owned by banks?

    Learn about the differences between investing with a bank-owned brokerage firm or with an independent broker. Get real answers ... Read Answer >>
  6. What is the difference between a national and a regional investment brokerage?

    Learn the differences between a national and a regional investment brokerage, and the advantages and disadvantages of doing ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center