Prime Services is a department within the markets division of an investment bank that provides investors with a combination of multi-asset products and solutions in equities, bonds, currencies and commodities via physical instruments or synthetic services. It provides access to execution services in all equity, currency, bond, commodity and derivative asset classes.
The main task of Prime Services is Prime Brokerage which offers financing, custody and clearing services usually on an integrated and global platform that gives clients access to real time execution services. Prime brokerage is therefore an activity developed by CIBs consisting of a set of services made available to investors.
In addition to brokerage services, Prime Services offers its clients the outsourcing of the front-to-back chain, operational services by allowing them to take advantage of existing infrastructures within CIBs, and cash management.
Prime services also include Prime Lending activities, which usually provide investment funds with secured financing and allow them to offer their clients leverage on the markets.
Finally, Synthetic Prime Brokerage services consist of providing synthetic structured finance solutions through the use of swaps, structured products, etc.
The risks and leverage costs of these activities
Since the Archegos affair of 2021 and the very important losses suffered by banks, in particular by Credit Suisse, which offered extremely high leverage to some of their clients, the prime services business is under the microscope and we understand the enormous risks taken by these activities. Moreover, following the Archegos affair, Credit has ceased its Prime Services activities.
Moreover, because of the large financing lines provided to clients, these activities are very capital intensive in terms of regulation and have a very high cost in terms of managing Basel ratios.