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SEC no-action letter relating to prime brokerage: Difference between revisions
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SEC no-action letter relating to prime brokerage (view source)
Revision as of 09:47, 9 February 2021
, 9 February 2021no edit summary
Amwelladmin (talk | contribs) (Created page with "{{a|pb|}}One of the sacred artefacts of US prime brokerage; deep lore that we foreigners ought not speak. ''But''. It does have a rather succinct description of what prime b...") |
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When a customer places an order with the [[executing broker]] it informs the [[prime broker]] who records the transaction in the customer’s prime brokerage account and in an account with the executing broker.}} | When a customer places an order with the [[executing broker]] it informs the [[prime broker]] who records the transaction in the customer’s prime brokerage account and in an account with the executing broker.}} | ||
So, for the purposes of the proposal, you have three actions going on: | |||
*'''Customer order''' to executing broker | |||
*'''Trade settlement''' settlement of the customer order between the executing broker and the prime broker on the customer’s behalf, which the [[prime broker]] settles out of its own funds | |||
*'''[[Margin loan]]''': A resulting [[margin loan]] between prime broker and customer (in the amount paid by [[prime broker]] to executing broker to settle the trade. | |||
Englishers should note that these transactions have a unusual quality of [[agency]] about them, the unintended consequences of which the SEC no-action letter is meant to ameliorate. In an English law arrangement, the trade settlement would be regarded as a [[principal]] trade from the get go — the practical difference between a [[delivery versus payment]] trade settlement done as ''[[agent]]'' and one done as [[principal]] being nil anyway. | |||
===Proposal=== | |||
[[Regulation T]] provides that | |||
The prime broker committee, chaired by Bear Stearns (remember them?) proposed to treat the trade settlement transaction between the [[prime broker]] and [[executing broker]] as an inter-dealer (principal) trade even though theoretically executed as agent for the client. | |||