Talk:Prime brokerage anatomy
If you wanted a simple, JC-endorsed explanation of how an equity prime services business operates, you could do a lot worse than to look at the introduction section of UBS’s “GFS Terms” document, which is the standard terms and conditions for its equity prime brokerage business. It neatly and clearlly sets is out. Professional courtesy and the need to maintain plausible deniability (for UBS as much as JC) recommends we say no more, but suffice to say that if JC was going to write a set of prime brokerage terms, hypothetically, this is how he might have done it.
But seeing as it is a publicly available document (https://www.ubs.com/gfsterms), and seeing as it does such a nice job, we will use it as a skeleton for our discussion of how prime services work.
A prime brokerage business is divided into three parts:
- Operational services: the operational services the broker provides to clients to enable them to transact in the market: Bank accounts To pay and receive transaction flows and margin payments; securities custody accounts ro hold customer inventory and settlement and payment services by which the broker accepts customer instructions to settle its transactions in the market.
- Transactions: actual brokerage transactions where the prime broker provides exposure to the customers: these may include margin loans, synthetic equity derivatives, exchange-traded derivatives, and securities financing arrangements.
- Risk and cost management: The various tools and mechanisms by which the broker optimises its funding, capital and balance sheet costs and manages the market and credit risks associated with customer Transactions. These include the broker’s rights to raise money against customers’ custody assets, call for initial and variation margin, and to close-out and cross-net open positions to a single exposure.