Any Prime brokerage service, IB, Lightspeed etc, is when you custody your account at the Prime Broker but execute with another broker.
it's for institutional traders. You can connect direct to counterparties like banks and make trades with huge sizes.
The "Prime" business exists from the institutional demand for services from other broker, but the desire to keep your assets in one place. Lightspeed and Lime have a number of customers that prefer us for execution but need to custody at another broker. They might have $500mm at ABN AMRO and want to back a manager with an allocation that requires ultra-low latency, which they do not provide. Here are a few examples. You want to do IPOs and have to provide commissions to another broker. You want research that one broker offers and have to provide commissions. You need ultra-low latency that another broker offers. You want to provide a sales trading desk large option or stock orders to work at another broker. The trades are done by the other broker then sent via DVP or CMTA to the Prime.
Can you give a rough estimate as to what is the minimum amount of capital needed to get a prime brokerage account these days? Is it > 5M?
Depends on the Broker. I believe the regulatory requirement is $500,000 but we require $1mm+. We also treat Prime accounts as only Reg-T as we can't track trading in realtime. No PM on DVP and CMTA trading. When we execute and don't Prime, that requirement would be based on the clearing firm, not us. Most large Banks require much more than $5mm.
Fair enough. It's $1m at IB but they will charge you $1000 per month that can be netted off against commissions. So if you generate 1000 in commissions, you won't pay anything. I personally think that you need 5m+ (as you say) to make the best out of it.