4.1.3.6. Prime Brokers
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 (DPPs) or engage exclusively in mergers and acquisitions are only required to carry a minimum of $5,000.
|
SUMMARY TABLE |
|
|
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 |
$5,000 |
|
Firms that deal in mutual funds and accept wire orders |
$25,000 |
|
Firms that deal solely with DPPs or engage exclusively in mergers and acquisitions |
$5,000 |
|
Market makers |
$100,000–$1,000,000 |