The Role of a Prime Broker

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In such transactions, two trades must be reported: Prime brokerage arrangements are established to facilitate the clearance and settlement of securities trades for highly capitalized investors who actively participate in the market.

They are designed to provide a centralized clearing facility and custodian for all of the customer's trades and resultant securities positions, regardless of the number of brokers used by the customer to execute its transactions. These arrangements involve at least three parties trade prime broker the prime broker, the customer, and the executing broker s.

The prime broker clears and settles the trades executed by one or more executing brokers at the direction of the customer. The obligations of the respective parties are specified in contracts between the prime broker and executing broker sand in individual contracts between each party and the customer.

Accordingly, the customer may place orders directly with the trade prime broker executing brokers who are party to the prime brokerage arrangement. Each executing broker holds an account trade prime broker the name of the prime broker for the benefit of the customer, and will record the customer's trade in such account.

On trade date, the customer notifies the prime broker of the trade performed by the trade prime broker broker. The prime broker issues a confirmation to the customer and computes all applicable credit and Regulation T amounts. The executing broker confirms the trade with the prime broker, who then generally has until the close of business of trade date trade prime broker one to affirm or disaffirm the trade.

The prime broker will affirm the trade if its information matches with that of the executing broker, and if the trade is within the credit limits and other parameters established for the customer's account.

The prime broker issues at least a monthly statement to the customer, which notes all of the customer's securities transactions during the subject period as well as resultant securities positions and monetary balances. Additionally, on the day following each trade placed with the executing broker sthe prime broker sends notification of such trade s to the customer, based upon the information provided by the customer.

If the customer has properly designated that the executing broker s send the trade confirmation s to the customer in care of the prime broker, the prime broker must inform the customer in writing that the confirmation is available to the trade prime broker without charge promptly upon request.

Both situations are subject to NASD Rule d 3 A trade prime broker, which generally provides that for principal transactions the reporting member the executing broker in the prime brokerage arrangement must report separately each purchase and sale transaction. A "riskless" principal transaction is a transaction in which a member that is not a market maker in the security, after having received from a customer an order to buy sellpurchases sells the security as principal to then satisfy the order.

Subsection trade prime broker 3 B provides that such occurrence shall be reported as one transaction in the same manner as an agency transaction.

Subsection d 3 B limits the exception to those instances where the subject order is for the account of a customer. In this regard, NASD Rule provides that the term "customer" shall not include a trade prime broker or dealer.

Alternatively, the executing broker may "give up" the prime brokerage customer in the initial trade report pursuant to a "give up" arrangement between the two parties. In a "give up" arrangement, a member who reports or accepts a trade in the Automated Confirmation Transaction Service SM ACT SM on behalf of another member would identify in the ACT screen "give up" box the member on whose behalf the trade was being reported or accepted. Where the executing broker accepts a trade that has been reported by another member, the reporting member would have to trade prime broker the trade with the executing broker as the contra-side and identify the prime brokerage customer as the contra-side "give trade prime broker.

This would avoid a second trade report and ensure that the prime brokerage customer is identified to the NASD. The SEC had twice previously extended the relief granted in the letter and has now granted permanent status to that relief. In particular, the letter clarifies the responsibilities and obligations of the prime broker, the executing broker, and the customer. SEC approval is extended now until December 31, Subparagraphs c 4 and trade prime broker 7 of the Rule allow the SEC, upon application, to designate foreign depositories, foreign clearing agencies, foreign custodian banks, or other locations as trade prime broker control locations for customer fully paid and excess margin securities.

The original approval to use foreign control locations in the former USSR states was granted through December 31, Trade prime broker inquiries from firms seeking to continue to use these locations after that date, the SEC extended its approval until December 31, You need the Flash plugin. Download Macromedia Flash Player.

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