Prime Brokerage Firms

A prime brokerage firm is that kind of a firm, which offers a number of investment banking services for hedge funds. Usually, these services are available in the form of a combined package.

A prime brokerage firm or prime brokerage house works with the help of a prime broker. The principal advantage of availing the services of a prime broker is that the securities clearing services of hedge fund offered by the prime broker is operated in a centralized fashion and the collateral necessities for the hedge fund are cleared among all the transactions supervised by the prime broker.

In return, the prime broker receives a fee for funding both the short term and long term security and cash positions of the customer. Sometimes, the prime broker also charges some fees for clearing services and other types of services. This fee is commonly termed as spread.

The products and services offered by the prime brokerage firms can be categorized into the following types:
Financing (Facilitation of leveraging of customer’s assets)
Securities lending
Global custody (which includes asset servicing, custody, and clearing services)
Operational Support Services
Customized technology services

Additionally, the prime brokerage firms offer certain value added services, which include the following:

Office Premises Leasing and Servicing (Leasing of commercial real estate)
Capital Introduction
Consultancy or Advisory Services
Advisory services related to risk management
The concept of prime brokerage firms was introduced in the United States in the latter part of 1970s. A number of investment banking firms adopted the concept, which included Merrill Lynch, Bear Stearns, Lehman Brothers, Morgan Stanley, as well as Goldman Sachs.

The earliest prime brokerage firm was formed by Merrill Lynch International Bank in the latter part of 1980s in London.
The fees or spreads are charged by the prime brokers on the following basis:
Customer deposits (credit balance)
Customer loans (debit balance)
Customer short selling (short balance)
CFDs (Contract for difference) and swaps

The leading prime brokerage firms include the following:
Banco Espirito Santo
ABN AMRO
Barclays Capital
Bank of America
BNP Paribas
Bear Stearns
Citigroup
Calyon Financial
Credit Suisse
CIBC World Markets
Dresdner Kleinwort
Fidelity Investments
Deutsche Bank
Goldman Sachs
Fortis
JP Morgan Chase
Jefferies & Company
Merrill Lynch
Lehman Brothers
RBS
Morgan Stanley
Rabobank
RBC Capital Markets
UBS
SEB

 

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Last Updated on : 27th June 2013

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