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Prime broker means main broker. Institutional investors often have accounts with multiple brokers (for various reasons – difference in execution, research, relations, counter-party risks, etc). This, however, creates a problem – over time, funds assets become scattered. The concept of prime brokerage was created to address this issue: a fund can designate one of its brokers as primary – a place where all assets are consolidated.

A fund then can use various executing brokers to buy or sell positions, but all trade settlements are routed to its prime broker. Such consolidation has multiple benefits: offsetting (netting) positions against each other, facilitating pledging of assets to borrow money, aggregation of information for reporting & accounting, etc.

Over time, prime brokerage value proposition evolved from simple consolidation to a suite of services tailored to hedge funds and other sophisticated financial institutions. Their needs are quite different from other broker clients not only in scope (they require some unique services), but also in implementation (even typical services often need to be done differently). For example:

Capital introduction services (connecting fund managers and investors);

Locating hard-to-borrow securities for shorting;

Accumulating/disposing large blocks of illiquid/exotic securities;

Providing margin financing on better terms (i.e,

Providing API access to broker IT systems to feed funds reporting, analysis and compliance systems;

Financial institutions implement their prime brokerage solutions very differently. Here is, for example, how prime brokerage fits Morgan Stanleys organizational structure:

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What is the minimum level of assets that the major prime brokers (GS, MS, JPM or others) typically require to prime with them?

Are prime brokerage transaction costs lower than retail brokers?

What is prime of prime brokerage in forex? What is their business model?

Whats the maximum amount of leverage a hedge fund can get from a prime broker for a single position?

What is risk and margin in prime services or prime brokerage area?

What is the minimum assets to open a prime brokerage account?

What is the difference between prime brokerage and just brokerage?

What are the brokerage charges by leading brokerage?

What is the benefit of having different brokerage accounts?

What is the typical prime brokerage margin requirement for high volatility tech stocks (e.g. a FAANG portfolio)?

How can you short trades with a brokerage account?

Does margin interest and brokerage fees offset stock gains?

What is the minimum level of assets that the major prime brokers (GS, MS, JPM or others) typically require to prime with them?

Are prime brokerage transaction costs lower than retail brokers?

What is prime of prime brokerage in forex? What is their business model?

Whats the maximum amount of leverage a hedge fund can get from a prime broker for a single position?

What is risk and margin in prime services or prime brokerage area?