Goldman Sachs Prime Brokerage Agreement

Therefore, clients who make large short sales or leverage are a more lucrative opportunity than clients who make fewer short sales and/or use minimal leverage. Clients whose market activities are primarily focused on fixed income will typically generate less premium brokerage income, but can still represent significant economic opportunities in the investment bank`s repo, currency (fx), futures and flow businesses. The prime brokerage landscape has changed dramatically since the collapse of Lehman Brothers in September 2008. Hedge funds that received margin financing from Lehman Brothers were unable to withdraw their collateral when Lehman applied for Chapter 11 protection, in the absence of asset protection rules in the UK (such as 15c3 in the US). This is one of the many factors that led to a massive reduction in capital market debt during the 2007-2008 financial crisis. Large institutions do not invest in capital markets like you or me. While we use brokerage to occasionally buy or sell stocks or investment funds, they act regularly and often with difficulty. They also do more than buy and sell long; Often, they also sell stocks short, use options or use a number of securities trading instruments. If you do not have hedge funds or other types of securities trading, it is very unlikely that you will need the services of a premium brokerage. Even daytraders who trade several times a day don`t really have this need, as buying and selling them is usually pretty easy, without including a lot of derivatives or margin financing. The majority of prime brokerage clients are large investors and institutions. Asset managers and hedge funds often meet the qualifications, as do arbitrators and a large number of other professional investors.

In the case of hedge funds, prime brokerage services are often considered essential to the success of a fund. After the collapse of Lehman, investors understood that no broker premium was too big to fail and spread their counterparty risk across several prime brokerages, especially those with high capital reserves. This trend towards multi-premium brokerage is also not devoid of freedom. From an operational point of view, it increases complexity and hedge funds need to invest in additional technologies and resources to manage the different relationships. From the investors` point of view, multi-prime brokerage also increases due diligence, as it becomes very complicated to make a good asset comparison between the fund manager and its counterparties. [3] For example, a primeur broker may also lease offices to hedge funds and include on-site services as part of the agreement. Risk management and advisory services can be part of this, especially when the hedge fund has just started operations. Every client in the market of a first broker has certain technological needs related to the management of his portfolio. These can be as simple as daily billings or as complicated as real-time portfolio reports, and the client must work closely with the first broker to ensure their needs are met. Some Prime brokers offer more specialized services to certain clients. Prime Brokerage, sometimes also referred to as prime broker, are usually larger financial institutions that deal with other large institutions and hedge funds….

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