A Swiss-US dual citizen, Garrick has over 25 years of experience in the securities services industry. Prior to his current role, he held positions as Swiss Securities Country Manager with Citibank and as Senior Relationship Manager with UBS both in Zurich. Collateral Protect represents the next category of offerings from Zodia Custody Gateway, the custodian’s marketplace that enables institutions to discover select, vetted partners and third-party services. Collateral Protect is made possible through the integration with Tokenet, and is the most advanced integration that Tokenet has supported to date. As both Zodia Custody and Digital Prime Technologies are regulation-first businesses, this also ensures added security for financial institutions to participate in the market while operating within the https://www.xcritical.com/ most robust regulatory framework available today.

Example of Custody Only Trading

• A custodian refers to a financial institution that holds securities of its clients for safekeeping.
• The German bank says it has invested heavily in the technology and consolidated reporting platform to ensure the movements are as uninterrupted and inexpensive as possible.
• Capital Fund Law Group has authored numerous investment fund publications, including instructive eBooks, white papers, blog posts, and sample offering document excerpts with illustrative footnotes.
• A prime broker is a central broker through whom the fund executes most or all of its trades and who typically acts as custodian of the fund’s assets.
• A prime broker offers clearing services for transactions in both cash and securities.
• The two cases became public within months of each other, though some Prime Trust customers had already switched to become Fortress Trust customers.

Since then, the investment bank has used its substantial resources to build a prime brokerage platform that is seeking to challenge many of the established players. Its plan to develop a business underscores how the market in prime brokerage continues to evolve in new ways in the wake of the credit crisis. While a hedge fund traditionally holds accounts at different brokerage firms, it commonly prime custody instructs these executing brokers to clear all trades through its designated prime broker. Doing so simplifies reporting and operations for the fund since the prime broker also serves as the custodian for the hedge fund’s assets. This further streamlines the process of borrowing investment securities and capital since the hedge fund’s assets can quickly and easily be shifted to the prime broker as collateral. It is equally imperative that hedge funds appoint firms who can support a wide range of different asset classes.

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In today’s electronically connected world, your trade order may be executed within mere seconds. However, a number of complex processes occur in the background, involving both primary brokerage as well as custody-related functions. In some instances, a single broker may provide both functions, and in other cases, two entirely separate institutions may be involved. With a custodian that adheres to high standards for efficiency and risk management, you can meet the challenges of investing in today’s evolving markets with confidence. With a custodian that adheres to high standards for efficiency and risk management, you can meet the challenges of investing in today’s evolving markets. Our investors also enjoy simple and secure access to their portfolio data, as well as robust reporting capabilities.

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But even if there are operational efficiencies, the service is not without cost. This was something we needed in our arsenal to ensure clients were comfortable with giving us their prime brokerage business.”Another prime broker, Deutsche Bank, has gone down a different path. It has since 2009 offered clients the option to place unencumbered assets with a third party custodian. While the initial launch focused on European clients, the model is also gaining traction in the United States. The operational burden of moving and reporting assets is borne by Deutsche Bank, but daily oversight and control is in the hands of the hedge fund manager. The German bank says it has invested heavily in the technology and consolidated reporting platform to ensure the movements are as uninterrupted and inexpensive as possible.

Hedge funds moving more assets into prime custody accounts with active management

Stock lending and financing in exchange for collateral were just the principal tools by which they did this. It follows that, if assets and cash are no longer in custody with prime brokers, or being financed on margin by prime brokers, the revenue and profitability of the business is bound to be seriously affected—and it is. The overall value of short sales tracked by Data Explorers has remained flat throughout that period. In fact, if the revenues of all of the major prime brokers have tracked those of Goldman Sachs, they will currently be running two thirds below their pre-crisis peak. They may also offer capital introduction services for the hedge fund’s manager.

Custody-Only Trading: Meaning, Drawbacks, Example

To complete requested withdrawals, the company used customer funds to purchase assets from December 2021 to March 2022. Making matters worse, a crypto bear market set in which placed further strain upon the company’s finances. The company also invested customer funds in TerraUSD, a doomed algorithmic stablecoin that collapsed in May 2022. Netting is a process where multiple positions are taken on by an investment bank or financial institution and can be aggregated into one net obligation position. This is done to reduce the risk in multiple financial contracts that are taken on by investment institutions.

Combine Prime Brokerage With Custody — Voilà: ‘Prime Custody’

The StoneX Institutional Prime business is part of the wider Securities group led by James McAuslan, Global Head of Prime Services and Head of Securities for EMEA. A Swiss citizen, Marco has over 22 years of professional experience in the Securities Services industry. He started his career in 1996 at Bank Leu, followed by ABN Amro Bank Switzerland where he held the role as Deputy Head of Securities Operations.

Q&A with BNP Paribas Prime Brokerage and Custody

In addition, he notes custodians can also provide clients with a full gamut of financing solutions – including fund of hedge fund financing and committed secured overdrafts for single hedge funds. This custodial relationship facilitates simpler reporting of the fund’s positions (which in turn simplifies the work of the administrator and auditor) and allows the prime broker to use all of the fund’s assets for margin purposes. Prime brokers typically provide interactive trading platforms with extensive capabilities.

Amundi Metori Epsilon Global Trends Fund

Capital introduction is essentially the process of connecting hedge fund managers to potential investors in the form of the prime broker’s asset management and private banking clients. Glen Dailey, the head of prime brokerage at investment bank Jefferies & Co., doubts the integrated platform concept is attracting much money. Nonetheless, hedge funds are turning to custodians to supplement – rather than replace – the services already provided to them by their existing prime brokers.

You can monitor the details of your investment positions and transactions in one place using a consolidated view that facilitates record-keeping. The biggest drawback of custody-only trading is that it theoretically sacrifices some level of liquidity and efficiency. Investors with a particular strategy may find this downside is made up for by the prohibition against naked short selling. A prime broker makes money by charging a fee, such as a spread or premium on the loan from a commercial bank, in return for facilitating the transaction. Please contact customer services – www.fx-markets.com/static/contact-us to find out more.

The adoption of custody-only trading requires any purchase or transfer of stock to be placed through the issuing company’s transfer agent. The transfer agent cancels the shares received from the seller and issues a new share certificate for an equivalent number of shares to the buyer. While custody-only trading is a cumbersome process, some companies implement it to counter “naked” short selling. Casa helps investors take self-custody of their assets with multiple keys for greater protection against hacks, theft, and custodial risk. With a Casa vault, you can own your bitcoin and ethereum fair and square and have full peace of mind. In truth, government enforcement actions are a lagging indicator, and regulations act as a deterrent.

“Clients wanted to diversify their risk.” It was in this febrile atmosphere that “prime custody” entered the lexicon of the hedge fund industry. It emerged as the prophylactic of choice among hedge fund managers looking to protect themselves against counterparty risk. Though Deutsche Bank sold its global custody business to State Street in 2003, it retains a sub-custody network spanning the world and can offer hedge funds an in-house custody service separate from its prime brokerage arm as well on a market by- market basis.

While conventional short selling involves the sale of borrowed stock, “naked” short selling refers to short sales by traders who have no intention of borrowing and then selling the stock. Rather, they simply resort to short selling without borrowing the stock or ensuring that it can be borrowed, thereby driving down the price of the stock precipitously. Since custody-only trading requires purchase and sales of physical shares only, there is no stock for short-sellers to borrow or pretend to borrow, thereby discouraging naked shorting.

Prime Trust and Fortress Trust were hardly the first third-party institutions to fall prey to a key compromise, and as much as it pains us to say it, they are unlikely to be the last. These companies existed because there is a dearth of options for “qualified custodians” for regulated investments, such as trust accounts. According to a court filing, Prime Trust migrated its custody onto another platform in 2019.

Delivering enhanced transparency and greater oversight, our fully integrated solution facilitates financing for your long and short portfolios. Our prime services platform lets you borrow and finance securities within a segregated custody account, while its custody-based model eliminates the need for triparty arrangements between your custodian and prime brokers. Using innovative financing arrangements, we support a wide range of clients across asset classes, managing all portfolio financing activities, while you retain control.

On September 7, 2023, Fortress posted on X that a third-party vendor had cloud tools compromised. The post stated that Fortress Technology was not breached, and there was no loss of funds. Prime Trust was a custodian that acted as the backend for several exchanges and apps. StoneX has also announced an expansion of the team with the hiring of Gary Clifford-Newman (Cross Asset Sales) and James Barten (Head of EMEA Security Financing) to bolster growth and capabilities within London Prime Services. These hires follow the appointment of Andrew Sterry in October 2022 to head the newly created StoneX Institutional Prime group.

Outsourced administration and trustee services, along with enhanced leverage enabled by offering lines of credit, are additional features offered by many prime brokerage firms. The continued growth and expansion of XYZ’s hedge fund business mean the client would like to enter the more complex parts of the financial markets. The hedge fund could enter the financial securities market either through the lending of securities or leveraged transaction execution. A prime broker offers clearing services for transactions in both cash and securities. Clearing is ensuring the transaction settles with a timely transfer of funds and shares to both parties.

Aegis Prime is a new business unit of Aegis Custody, specializing in tokenization and Security Token Offerings (STOs) distributions among banks and broker dealers. Aegis Prime collaborates with asset holders and distribution channels to establish a regulatory-compliant ecosystem, unlocking vast opportunities for investors and the growth of the tokenization market. IN THE NEW back-to-basics, low-risk-tolerance environment where cash is king, custody has become the surprising darling of financial services.

“It makes complete sense, and our bank is in a position to offer it,” says Devon George-Eghdami, head of JPMorgan’s prime custody group. The integration marks a step change for the digital asset borrowing and lending space. The custodian, also known as custody provider, keeps possession of the assets, according to Pilotage.