Boston Prime | Prime Broker
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Trading transactions, customer liquidity, prime brokerage

What Is A Prime Brokerage?

Prime Brokerage 101….. Different shades of Prime Brokers….. A Closer look at Prime Brokers and BT Prime

When purchasing a Start Your Own Brokerage package from Boston Technologies, you have access to a host of large institutional liquidity providers through an affiliated company called Boston Prime. Boston Prime acts as a “prime broker” to the FX brokerage company but not in the traditional sense of the word.  Boston Prime simply holds a margin account and allows the broker to source liquidity through an aggregation process called BBO (best bid, best offer) that consolidates the best prices among every liquidity provider back to the brokerage firm.  

Thus it begs the question, what does a traditional prime brokerage firm do?   Prime Brokers are typically large investment banks and securities firms like JP Morgan, Goldman Sachs and Morgan Stanley  that offer a bundled suite of products and services to hedge funds and money managers so that they can operate their business.  You can almost think of them as an outsourced COO/CFO for these investment firms.  Among the services offered are:

  • Custody and Clearing of Assets
  • Financing – leverage facility allowing hedge funds to purchase securities on margin
  • Securities Lending – allowing the hedge fund to short securities
  • Technology – anywhere from trading platforms, portfolio management systems, risk management,  and reporting functionality
  • Cash & Liquidity Management
  • Operational support – middle and back office trading operations.  They also help set-up accounts for hedge fund start-ups (domicile, onshore/offshore entities, jurisdictions, master feeder structure, etc)
  • Capital Introduction – Assist hedge funds in raising capital by introducing them to investors that may be a good fit with their investment mandate
  • Business Consulting – This could range from advisory services, service provider recommendations (Accountant, Administrator, Legal, etc)
  • Other Services  - Such as access to equity research, structured financing, and other areas in capital markets. Also some PB’s will lease office space to hedge fund tenants which will usually include on-site IT and operational support.

The prime brokerage business is largely predicated on volume of assets;  the principal way they make money is through trading (ticket and custody charges), securities lending (shorting) and financing (leverage).  Prime’s will charge a hair-cut on both debit and credit balances which is usually based on LIBOR +/- several basis points.    

In contrast, Boston Prime doesn’t charge a commissions or mark-ups. The only revenue stream is a trading volume charge of $10 per 1,000,000 currency units.  However like traditional PB shops, Boston Prime will assist in setting up the legal structure of your business, as well as allow FX Brokers  access to our custom back office technology thus enabling them to view all their financial information in real time.  Lastly, typical prime brokerage financing starts at 2 to 1 , or Reg T, however given the nature of the FX markets, leverage at Boston Prime is enabled up to 100 to 1.

I hope this sheds some light on the various areas of the prime brokerage industry and if you have any questions or comments about Boston Prime or starting your own brokerage please feel free to contact us at [email protected] or (617) 314-6800.

                    

Our Liquidity Providers

They are large institutions and ECNs