Prime Brokerage Finance

Question 1

What does the division do?

Answer 1

Business that helps grease the wheels of hedge fund clients, lending them money and stock to execute trades.

Question 2

Prime Brokerage

Answer 2

Group of services that FIs offer to hedge funds and other large investment clients that need to borrow securities or cash to achieve returns.

Question 3

What services are provided under prime brokering?

Answer 3

Securities lending, leveraged trade execution, cash management

Question 4

Understanding

Answer 4

Revolve around facilitating the multifaceted and active trading of large FIs
Allow HFs to borrow securities increase leverage, acting as an intermediary for them to access pension funds and commercial banks.

Question 5

Prime Brokers Level of Resources Offering

Answer 5

Gives large institutions a mechanism allowing them to outsource many of their investment activities and shift focus onto investment goals and strategy,

Question 6

Prime Brokers Concierge Style Services

Answer 6

Risk Management, Capital Introduction, Securities Financing, Cash Financing

Question 7

Why is Collateral required by prime brokerage?

Answer 7

In securities lending, minimises the risk it experiences as well as gives it quicker access to funds if needed.

Question 8

Minimum Account Size to Open Prime Brokerage Accounts

Answer 8

$500K in Equity (Total Assets - Total Liabilities)

Hedge Fund as much as $200million to qualify for best treatment.

Question 9

Margin in Prime Brokerage

Answer 9

When a PB lends money to a client so they can purchase securities.

Question 10

What is PBA?

Answer 10

Agreement between PB and Client stipulating all services that the prime broker will be contracted for.
Lays out terms, fees, minimum account requirements, minimum transactions levels, any other details needed.

Question 11

How does PB generate revenue?

Answer 11

Overall fees, commissions on transaction and lending charges.

Question 12

Securities Lending

Answer 12

Practice of loaning shares of stock, commodities, derivative contracts, or other securities to other investors or firms.

Question 13

Leveraging Trade Execution

Answer 13

Use of a smaller amount of capital to gain exposure to larger trading positions via the use of borrowed funds, known as margin trading.

Question 14

Cash Management

Answer 14

Day-to-day administration of managing cash inflows and outflows.
Multitude of cash transactions on a daily basis, they must be managed.
Ultimate goal of cash management is maximise liquidity and minimise the cost of funds.

Question 15

Risk Management

Answer 15

Process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions.
Poor Processes can lead to Catastrophe - Subprime mortgage lending

Question 16

Capital Introduction

Answer 16

used to describe the introductions that prime brokerage firms will make on behalf of their money managers to help raise assets under management.

Question 17

Securities Financing

Answer 17

the lending of securities (stocks, bonds, asset-backed securities) by one party to another against cash.

Question 18

Cash Financing

Answer 18

uses the generated cash flow as a means to pay back the loan. Cash flow financing is helpful to companies that generate significant amounts of cash from their sales but don’t have a lot of physical assets, such as equipment, that would typically be used as collateral for a loan.

Question 19

Credit Default Swap

Answer 19

allows an investor to “swap” or offset his or her credit risk with that of another investor.

Question 20

Interest Rate Swap

Answer 20

Forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount.

Question 21

Bond

Answer 21

fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental

Question 22

ISA

Answer 22

Indvidiual Savings Account