Prime Brokerage Fees

Prime Broker Service Fees

Prime brokers don’t charge fees for many of the services they provide to hedge funds. Instead, profits are usually derived from three sources: spreads on financing (including stock loan), commissions from trading, 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. Therefore, clients who take substantial short-selling or major amounts of leverage are representatives of more lucrative opportunity than clients who do relatively less short selling and/or use minimal leverage

For example, it is said, that hedge funds will pay on Wall Street record fees next year for brokerage services. This business is currently dominated by Morgan Stanley, and Goldman Sachs Group Inc. Sources say that prime-brokerage fees may increase significantly, by almost a third, to $9US.9-billion in 2009.

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