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===And this could happen how, exactly?=== | ===And this could happen how, exactly?=== | ||
Given typical [[omnibus]] structure where: | Given typical [[omnibus]] structure where: | ||
*a counterparty to a hedge fund fails to settle an open trade into that | *a counterparty to a [[hedge fund]] fails to settle an open trade into that hedge fund’s {{tag|prime broker}}; while simultaneously ... | ||
*the {{tag|prime broker}} delivers a quantity of the same security to the market on behalf of a different | *the {{tag|prime broker}} delivers a quantity of the same security to the market on behalf of a different customer, relying to do so on that first purchase trade settling as intended ... | ||
*there may be a temporary [[shortfall]] in the prime | *there may be a temporary [[shortfall]] in the [[prime broker]]’s [[omnibus]] client {{t|custody account}}, pending resolution of the [[fail]]. | ||
Usually the [[fail]] will be quickly remedied, but if it isn’t the [[ | Usually the [[fail]] will be quickly remedied, but if it isn’t the [[prime broker]] must reduce its customers’ [[credit exposure]] as a result of the shortfall. It does this by putting its own assets (or money) aside, on trust, for the affected clients. | ||
{{nuts|CASS|6.6.54}} | {{nuts|CASS|6.6.54}} |