Fixed Income Prime Brokerage Agreement

There are a large number of legal agreements (or relationships) that can exist with a PB. This varies depending on the products traded (for example. B cash equities versus synthetic shares). For the purposes of this article, we focus on cash equity prime brokerage – in fact, the most common form of prime brokerage. The three pillars we`ll explain below apply more or less to other types of brokerage premiums, but there are nuances that we won`t cover here. The first broker takes advantage of this by imposing a fee („spreads“) for the financing of the client`s long and short positions in securities and, in some cases, by imposing clearing fees and other services. He also makes money by taking over the portfolios of hedge funds currently in use and calculating interest on these credit securities and other investments. [1] The invention of time limits without reason Termination without justification is done in normal business, without either party violating the contract. Any party in the PBA can end its relationship. The Fund should be able to terminate the relationship after notification of the PB, but the PB should be required to make a prior announcement.

The date of notification of the PB must correspond to the date of the commitment to execute/lock-up the fund. If the fund does not have a term-commitment/lock-up, a manager should try to get at least 30 days here. By the way, if possible (depending on the size and portfolio of the manager), a backup PB should be configured and active (or at least just before preparing). When a manager`s primary PB pulls securities lending cases, collateral is often required from the first brokerage. This allows them to minimize the risk to which they are exposed and, if necessary, gain faster access to funds. For example, a primeur broker may also rent 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. After the collapse of Lehman, investors understood that no first broker was too big to fail, and spread their counterparty risk across several prime brokerages, especially those with high capital reserves….

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