Financial market participants

Investors There are two basic financial market participant catagories, Investor vs. ... Image File history File linksMetadata Size of this preview: 800 × 600 pixelsFull resolution (2816 × 2112 pixel, file size: 2. ... An investor is any party that makes an investment. ...

Speculators speculation Speculation is the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income - dividends, rent etc. ... Speculation involves the buying, holding, and selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. ...

Institutional investors Insurance companies Investment banks Hedge funds Mutual funds Pension funds Private equity funds Venture capital funds Banks Credit Unions Trusts Prime Brokers An institutional investor is an investor who is an institution like a bank, insurance fund, retirement fund, or mutual fund manager. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... Investment banks help companies and governments (or their agencies) raise money by issuing and selling securities in the capital markets (both equity and debt). ... A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. ... This article deals with U.S. mutual funds. ... A pension (also known as superannuation) is a retirement plan intended to provide a person with a secure income for life. ... A private equity fund is a collaboration of funds that directs a private companys or individuals equity, either in the stock market or in real estate. ... Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ... For other uses, see Bank (disambiguation). ... A credit union is a cooperative financial institution that is owned and controlled by its members. ... A trust company is normally owned by one of three types of structures; an independent partnership, a bank, or a law firm, each of which specialize in being a trustee of various kinds of trusts, and managing estates. ...

Finance series Financial market Participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... For other uses, see Bank (disambiguation). ... Financial supervision is government supervision of financial institutions by regulators. ...

v • d • e

Prime Brokerage is the generic name for a bundled package of services offered by investment banks to hedge funds. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund, and the hedge fund's collateral requirements are netted across all deals handled by the Prime Broker. The Prime Broker benefits by earning fees ("spreads") on financing the client's long and short cash and security positions, and by charging, in some cases, fees for clearing and/or other services. To meet Wikipedias quality standards, this article or section may require cleanup. ... A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. ...

The following "core services" are typically bundled into the Prime Brokerage package:

• Global custody (including clearing, custody, and asset servicing)
• Securities lending
• Financing (to facilitate leverage of client assets)
• Customized Technology (provide hedge fund managers with portfolio reporting needed to effectively manage money)
• Operational Support (prime brokers act as a hedge fund's primary operations contact with all other broker dealers)

In addition, certain prime brokers provide additional "value-added" services, which may include some or all of the following: In finance, securities lending or stock lending refers to the lending of securities by one party to another. ... Finance addresses the ways in which individuals, business entities and other organizations allocate and use monetary resources over time. ...

• Capital Introduction - A process whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments.
• Office Space Leasing and Servicing - Certain prime brokers lease commercial real estate, and then sublease blocks of space to hedge fund tenants. These prime brokers typically provide a suite of on-site services for clients who utilize their space.
• Risk Management Advisory Services - The provision of risk analytic technology, sometimes supplemented by consulting by senior risk professionals.
• Consulting Services - A range of consulting / advisory services, typically provided to "start-up" hedge funds, and focused on issues associated with regulatory establishment requirements in the jurisdiction where the hedge fund manager will be resident, as well as in the jurisdiction(s) where the fund itself will be domiciled.

This article or section should include material from Tenancy agreement A lease is a contract conveying from one person (the lessor) to another person (the lessee) the right to use and control some article of property for a specified period of time (the term), without conveying ownership, in exchange for... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ...

History

The basic services offered by a prime broker give a money manager the ability to trade with multiple brokerage houses while maintaining, in a centralized master account at their prime broker, all of the hedge fund’s cash and securities. Additionally, the prime broker offers stock loan services, portfolio reporting, consolidated cash management and other services. Fundamentally, the advent of the prime broker freed the money manager from the more time consuming and expensive aspects of running a fund. These services worked because they also allowed the money manager to maintain relationships with multiple brokerage houses for IPO allocations, research, best execution, conference access and other products.

The concept and term "prime brokerage" is generally attributed to the U.S. broker-dealer Furman Selz in the late 1970s. In the pre-prime brokerage marketplace, portfolio management was a significant challenge; money managers had to keep track of all of their own trades, consolidate their positions and calculate their performance regardless of which brokerage firms executed those trades or maintained those positions. The concept was immediately seen to be successful, and was quickly copied by the dominant bulge bracket brokerage firms such as Morgan Stanley, Bear Stearns, Merrill Lynch, Lehman Brothers, and Goldman Sachs. At this nascent stage, hedge funds were much smaller than they are today and were mostly domestic (US) long-short equities funds. The first overseas prime brokerage business was created by Merrill Lynch International Bank in London in the late 1980s. A broker-dealer is an institution that has registered with the SEC in order to have the ability to buy and sell securities for customers as well as for its own account. ... The 1970s decade refers to the years from 1970 to 1979, also called The Seventies. ... Bulge bracket is a phrase associated with finance, in particular the investment banking industry. ... Morgan Stanley (NYSE: MS) is one of the largest and the most reputed investment banks headquartered in New York City. ... The Bear Stearns Companies, Inc. ... Merrill Lynch & Co. ... Lehman Brothers Holdings Inc. ... The Goldman Sachs Group, Inc. ... This article is about the capital of England and the United Kingdom. ...

Through the 1980s and 1990s, prime brokerage was largely an equities-based product, although various prime brokers did supplement their core equities capabilities with basic bond clearing and custody. In addition, prime brokers supplemented their operational function by providing portfolio reporting; initially by messenger, then by fax and today over the web. Over the years, prime brokers have expanded their product and service offerings to include some or all of the full range of fixed income and derivative products, as well as foreign exchange and futures products. For other uses, see Stock (disambiguation). ...

As hedge funds have proliferated globally through the 1990s and the current decade, prime brokerage has become an increasingly competitive field and an important contributor to the overall profitability of the investment banking business. As of 2006, the most successful investment banks each report over two billion dollars in annual revenue directly attributed to their prime brokerage operations (source: 2006 annual reports of Morgan Stanley and Goldman Sachs). For the band, see 1990s (band). ... The United States dollar is the official currency of the United States. ...

Fees

Prime brokers do not charge a fee for the bundled package of services which they provide to hedge funds. Instead, revenues are typically derived from three sources: spreads on financing (including stock loan), trading commissions and fees for the settlement of transactions done away from the prime broker. The financing and lending spreads, which are charged in basis points on the value of client loans (debit balances), client deposits (credit balances), client short sales (short balances), and synthetic financing products such as swaps and CFDs (Contract for difference), make up the vast majority of prime brokerage revenue. Therefore, clients who undertake substantial short-selling or leverage represent more lucrative opportunity than clients who do relatively less short selling and/or utilize minimal leverage. Clients whose market activities are principally fixed income oriented will generally produce less prime brokerage revenue, but may still present significant economic opportunity in the repo, fx, futures, and flow business areas of the investment bank. This article or section does not cite any references or sources. ... This article does not cite any references or sources. ...

Risks

Prime Brokers facilitate hedge fund leverage, primarily through loans secured by the long positions of their clients. In this regard, the Prime Broker is exposed to the risk of loss in the event that the value of collateral held as security declines below the loan value, and the client is unable to repay the deficit. In practice, such conditions arise only in the case of extraordinary volatility or unexpected correlation reversions and are exceedingly rare. Other forms of risk inherent in Prime Brokerage include operational risk and reputational risk.

Large prime brokerage firms today typically monitor the risk within client portfolios by either Value-at-Risk ("VAR") or "Rules Based" stress testing. Stress testing entails running a series of what-if scenarios that identify the potential gains or losses for each position due to adverse market events.

Examples of stress test scenarios include:

 Flight to Quality 1% up or down parallel movement in 10 year treasury yield curve 

List of Prime Brokers

The following notable investment banks are known to be providing prime brokerage services at present:

• ABN AMRO
• Banco Espirito Santo
• Bank of America
• Barclays Capital
• Bear Stearns
• BNP Paribas
• Calyon Financial
• Citigroup
• CIBC World Markets
• Credit Suisse
• Deutsche Bank
• Dresdner Kleinwort
• Fidelity Investments
• Fortis
• Goldman Sachs
• Jefferies & Company
• JPMorgan Chase
• Lehman Brothers
• Merrill Lynch
• Morgan Stanley
• RBS
• RBC Capital Markets
• Rabobank
• SEB
• UBS