Prime brokerage is the generic name for a bundled package of services offered by investment banks and securities firms to hedge funds and other professional investors needing the ability to borrow securities and cash to be able to invest on a netted basis and achieve an absolute return. The prime broker provides a centralized securities clearing facility for the hedge fund so the hedge fund's collateral requirements are netted across all deals handled by the prime broker. These two features are advantageous to their clients.
The prime broker benefits by earning fees ("spreads") on financing the client's margined long and short cash and security positions, and by charging, in some cases, fees for clearing and/or other services. It also earns money by rehypothecating the margined portfolios of the hedge funds currently serviced and charging interest on those borrowing securities and other investments.
Read more about Prime Brokerage: Services, History, Counterparty Risks, Fees, Risks, Margin Methodologies
Famous quotes containing the word prime:
“Vanessa wanted to be a ballerina. Dad had such hopes for her.... Corin was the academically brilliant one, and a fencer of Olympic standard. Everything was expected of them, and they fulfilled all expectations. But I was the one of whom nothing was expected. I remember a game the three of us played. Vanessa was the President of the United States, Corin was the British Prime Minister—and I was the royal dog.”
—Lynn Redgrave (b. 1943)