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Prime Brokers Agreement

The concept and term “prime brokerage” is generally attributed to the American broker Furman Selz in the late 1970s. However, the first hedge fund transaction was awarded to Alfred Winslow Jones in 1949. In the pre-brokerage market, portfolio management has been a major challenge; Money managers had to monitor all their own trades, consolidate their positions and calculate their performance, regardless of the brokerage firms that held or maintained those trades. The concept was immediately considered a success and was quickly copied by leading brokerage firms such as Morgan Stanley, Bear Stearns, Merrill Lynch, Credit Suisse, Citigroup and Goldman Sachs. At this point, hedge funds have been much smaller than they are today and have been mainly in the U.S. long/short-equity funds. The first non-American Brokerage business was founded in the late 1980s by the London office of Merrill Lynch. Following the financial crisis from 2007 to 2008, new entrants entered the market with deposit brokerage offers. [2] Restructuring transactions in 2008 included the acquisition of Bear Stearns in JP Morgan, Barclays` acquisition of Lehman Brothers` U.S. assets, Bank of America`s acquisition of Merrill Lynch, and Nomura`s acquisition of certain Lehman Brothers assets in Europe and Asia. The diversification of counterparties has seen the largest flows of client assets from Morgan Stanley and Goldman Sachs (the two companies that have played the biggest role in the business in the past and were therefore the most engaged in the diversification process) and the companies considered the most creditworthy at the time. The banks that recorded the most were Credit Suisse, JP Morgan and Deutsche Bank. During these market changes, HSBC launched a first-rate brokerage business called HSBC Prime Services in 2009, which built its first-rate brokerage platform out of the deposit business.

In addition, some premium brokers offer additional “value-added” services that may include some or all of the following: whether perception is based on sound foundations is open to much longer debate; While it is interesting to note that some hedge funds seem to be as frustrated with the SIPC trustee who suffers the first US lehman broker as with the administrator of the UK Prime Broker lehman. Nevertheless, there has been a concerted response from both British regulators and early brokers. Publicly available information on changes on the horizon is still at a high level at this stage, so it is far too early to assess the impact they could have. It remains to be hoped that they will provide effective solutions to these concerns, so that the decline of primary brokers affected by bankruptcy will not drag hedge fund clients down in the future. On the other hand, this should restore much-needed confidence in the UK premium brokerage model and encourage the flow of assets to UK premium brokers. But with the effectiveness of regulatory and structural changes, as with first-class brokerage contracts, the devil is always in the details. In particular, Lehman`s insolvency has cast the spotlight on premium brokerage agreements and the prime brokerage model and the decisive role that each plays in managing first-class brokerage credit risks. While hedge funds multiplied worldwide in the 1990s and 2000s, the first brokerage became an increasingly competitive field and contributed to the overall profitability of investment banking activities. In 2006, the best-performing investment banks each generated annual revenues of more than $2 billion, directly attributed to their first-class brokerage activities (source: 2006 Morgan Stanley and Goldman Sachs business reports).

As a result, customers who engage in a large short sale or leverage represent a more lucrative opportunity than customers who make fewer short sales and/or use minimal leverage.