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:
“And this must be the prime of life . . . I blink,
As if at pain; for it is pain, to think
This pantomime
Of compensating act and counter-act,
Defeat and counterfeit, makes up, in fact,
My ablest time.”
—Philip Larkin (1922–1986)