A prime broker is an investment bank or specialist firm that provides hedge funds with custody, financing, securities lending, trade settlement and capital introduction under one relationship. Prime brokers serve funds above a size threshold, typically tens of millions in assets.
Prime brokerage grew up around equity long/short funds that need leverage and short-selling. Its capital-introduction service is a by-product of the relationship, offered to clients who generate enough revenue. Emerging managers below the threshold use executing brokers and independent custodians instead.
In digital assets, prime-broker equivalents provide custody, venue access and credit, but the market is fragmented and most small funds connect to exchanges directly.
POD funds trade through fund-owned sub-accounts at named venues and a qualified custodian rather than a prime broker, which is what makes the structure available from US$1 million of AUM.
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