Prime brokers are firms that provide services for other firms (e.g., hedge funds or other institutional investors). Prime brokers are typically investment banks, but can also be broker-dealers. They often clear and settle trades that involve numerous brokers. When a customer firm of a prime broker wants to effect a trade, it will first go to an executing broker to handle the trade. The executing broker will then inform the prime broker, which will clear and settle the trade.
• Prime brokers are required to maintain at least $1,500,000 in net capital.
• Executing brokers are required to keep at least $1,000,000 in net capital.
• Firms that deal solely with direct participation programs or engage exclusively in mergers and acquisitions are only required to carry a minimum of $5,000.
Minimum Net Capital Requirements for brokers
Type of Broker
Minimum Net Capital Requirement
Carrying firms that carry accounts and hold custody of client assets
$250,000
Firms that carry accounts, but do not hold custody of client assets
$100,000
Introducing firm that does not receive customer securities
$5,000
Introducing firm that does receive customer securities
$50,000
Firms that deal in mutual funds only and sell on a subscription basis only
